by Carl Delfeld, Global Markets Strategists, The Oxford Club
Wednesday, November 21, 2012: Issue #1910
It’s hard not to be envious of Australians.
I used to travel “down under” every three months to pitch U.S. stocks to Australian banks, mutual funds and insurance companies. After a week in vibrant Sydney and historical Melbourne, it was always tough to get on the plane and head home.
The country is blessed not only with natural beauty, fun-loving people and tremendous resources, but by its geography, it’s also at the heart of Pacific trade flows. A smallish, energetic population coupled with a commodity boom has led to two decades of uninterrupted growth.
No wonder investors are in love with Australia, but why give the cold shoulder to another lucky country that’s equally blessed.
Get your head around this fact: Norway has the world’s largest sovereign wealth fund.
A Sort of “High-Tax Heaven”
With a population of only 4.9 million, there are more Norwegians in the Minneapolis area than in Norway. Yet the country is the largest oil producer and exporter in Western Europe and the world’s second-largest exporter of natural gas.
You might think that this petro wealth would translate into low taxes – but you would be dead wrong. Norway is a weird sort of high-tax heaven.
High-income Norwegians pay nearly 50% of their income to the federal government, along with a substantial additional tax that works out to roughly 1% of their total net worth. And that’s just what they pay directly. Payroll taxes in Norway are double those in the United States. Sales taxes, at 25%, are roughly triple. Plus, the highest income tax rates kick in at $124,000. From there, the income tax rate, including a national insurance tax, is 47.8%. Then there’s the wealth tax, a 1.1% annual levy on the entirety of a person’s holdings above about $117,000, including stock in private companies held by the owner.
Try getting that package through the U.S. Senate Finance Committee.
The flip side of this politically toxic cocktail of taxes is that at age 67, workers get a government pension of up to 66% of their working income, and everyone gets free education, from nursery school through graduate school plus free high-quality day care for the asking. Wow.
An A+ in Fiscal Discipline
Norway’s economy is not only driven by ample resources, as the rates of start-up creation here are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States. Economic growth is close to 4% and the unemployment rate is a rock bottom 3.1%.
The government gets an A+ in fiscal discipline, as it can only draw 4% of its $650-billion oil fund to support its annual budget, which probably makes Norway’s government balance sheet the best in the world.
The management of this gigantic fund, up 4.7% in the third quarter, may offer some lessons for us in our personal finances:
- First, it reduced its bond holdings in the U.S. dollar, euro and Japanese yen by 10% in the quarter.
- Second, bonds make up 40% of its oil fund with the rest in global equities. The yield on its bond portfolio is about 2%.
- Third, China exposure represents only 0.8% of the entire portfolio, but exposure to other emerging markets is growing.
Your best bet to enter high-tax, oil-rich Norway is through the gates of the Global X Norway ETF (NYSE: NORW), which has about half of its holdings in the energy sector and offers dividend yield of 2.4%.
But who knows, maybe it’s more than just luck…
CarlThe "Other" Lucky Country,