Switzerland has its back to the wall financially

Schweiz Parlament Bundesrat Regierung Finanzen Finanzplan Einnahmen Ausgaben Defizit
Parliament and the Federal Council must implement austerity measures. (Image: Ansgar Scheffold / unsplash)

The impression is created that everyone could wish for something from the state. Yet Switzerland’s finances are completely stretched to the limit. So what is to be done?

The short document that the administration has published – somewhat hidden on the federal government’s website – gets under your skin. According to the document, Switzerland’s finances are currently running ‘completely out of control.’

For 2024, there is a shortfall of 1.1 billion Swiss francs. For the years 2025 and 2026, the financing gap skyrockets to 3 and another 3.1 billion Swiss francs, respectively.

SNB does not pay

These are gigantic additional expenditures that are pending and are currently not covered by planned revenues.

The dramatic nature of the situation is made even clearer by the fact, officials write bluntly, that although the payout from the Swiss National Bank (SNB) is budgeted at 2 billion Swiss francs a year, this is subject to a complete risk of default in view of the billions in losses at the central bank.

Further default risks

In the plan, profit and income tax grows in line with nominal GDP and with household incomes. However, should the OECD tax reform come to pass, or should the economy hit companies and citizens, the entire financial framework will go down the drain.

This does not even take into account that the loss of revenue will amount to between 320 and 950 million Swiss francs if, depending on the view of the Council of States or the National Council, the change in the system of taxation of residential property prevails.

If individual taxation, as planned by the Federal Council, comes into effect, another billion in revenue will be lost, as muula.ch discovered in the fine print.

Energy costs on top

Revenue estimates for the federal budget are based on June 2022 economic forecasts, but Switzerland’s economic output may not reach its previous growth path because of permanently higher energy prices or a lower international supply of labor, officials cautioned.

So, what to do? Well, taking on new debt is no longer an option because the debt brake is already in effect and the federal government can no longer plan for deficits.

Nest egg unattainable

In an emergency, Switzerland can overdraw its budget. However, this is only possible if exceptional developments that cannot be controlled by the federal government can be claimed. But the government cannot apply the exception rule to permanent expenditures. In addition, it would need a qualified majority in both chambers of parliament.

Tax increases would be a possibility. However, since the sovereignty lies with the people, this path would be rather lengthy. An increase in the value-added tax or the direct federal tax would also require amendments to the federal constitution.

Fixed or declining revenues

The document states dryly that additional revenues are at most possible in areas where there is still some legal or constitutional room to maneuver.

The revenues in the federal budget are therefore more or less set. At best, some additional money will be flushed into the federal coffers via the value-added tax with the emerging inflation. So there is no alternative but to focus on spending.

Missing billions

And there the wish list is enormous. For example, the increase in army spending in the financial plan for the years 2024 to 2026 comes to 0.6 and 1.0 and 1.4 billion Swiss francs, respectively.

The financing of the Swiss Federal Railways (SBB) with a one-off cost of 1.2 billion Swiss francs, the counter-proposal to the glacier initiative, the counter-proposal to reduce health insurance premiums passed by the National Council and the transitional measures for the Horizon education program will easily cost another 6 billion Swiss francs.

Not to mention the fact that the federal government has committed – and will have to pay – another half a billion Swiss francs for the Status S of Ukraine refugees in 2024.

Cancel expenditures

The document and a terse media blurb contain sentences that really get under the skin. “The first step is to prevent the situation from getting any worse,” it concluded. The Federal Council and Parliament must immediately take on this task together. This requires the consistent counter-financing of new projects.

Delaying projects

“The remaining deficits must be eliminated in the short term by setting priorities or making cross-cutting cuts,” the federal financial planners babbled. All this could also mean that certain projects can only be put into effect with a delay.

Switzerland likes to look to the U.S. with interest to see how dramatically automated austerity exercises are unleashed when their debt brake is exceeded.

But there is no reason at all to look to the distant future. There is just as much to be done here at home right now.


Switzerland has its back to the wall financially

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