November 30, 2016 / 12:50 PM / a year ago

UPDATE 2-Norway's 2017 budget talks break down, government at risk

* Minority government unable to win backing for 2017 budget

* Prime minister has until Dec. 5 to prevent fall of government

* Carbon emission taxes at hart of conflict (Adds quotes, bullets, background)

By Camilla Knudsen and Stine Jacobsen

OSLO, Nov 30 (Reuters) - Negotiations over Norway’s 2017 budget broke down on Wednesday when a second centrist party abandoned talks with the right-wing minority government, putting the ruling coalition at risk of collapse.

Disappointed by a lack of progress, including on policies to combat carbon emissions, Christian Democrat leader Knut Arild Hareide pulled his party out of the talks just a day after the Liberal Party walked out.

“We see no chance of finding a solution based on the latest proposals we have received,” Hareide told reporters adding that he would only return to negotiations if the government fundamentally changed its position.

“It’s up to the government to secure a budget,” he said.

In power since 2013, Prime Minister Erna Solberg’s Conservatives and Finance Minister Siv Jensen’s Progress have relied on support from the two smaller parties to cut taxes and raise spending to counter an economic downturn triggered by falling oil prices.

Solberg and Jensen held a brief meeting with the leaders of the Liberals and Christians on Wednesday afternoon, but emerged from the talks without any progress.

“It now looks very hard to reach a deal,” Solberg told Norwegian news agency NTB, while adding there was still time ahead of parliament’s Dec. 5 vote on the budget bill.

With a $862 billion sovereign wealth fund, more than twice Norway’s annual gross domestic product, the key debate is not over how much money to spend in 2017 but rather how to compromise on the four parties’ conflicting policy goals.

There are big differences, for example, over petrol and diesel taxes, which the centrists want to raise sharply to help cut greenhouse gas emissions, while the government has only agreed to a small increase.

Without support for a budget, Solberg may ask parliament for a vote of confidence, a rarely used last-ditch measure to prevent a government collapse.

As early elections are not permitted under Norway’s constitution, and the next vote is not due until September 2017, the Christian Democrats are seen by some analysts as a potential white knight that may help a weakened government stay in power.

But if a confidence motion were to fail, it would force Solberg to resign and trigger a complex round of talks to determine whether or not the Labour Party should replace the coalition.

In this case, parliament may also have to pass legislation, last used in the 1980s, to allow government business to continue uninterrupted into 2017 while a permanent budget is worked out. (Writing by Terje Solsvik and Alister Doyle, editing by Richard Lough and Robin Pomeroy)

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