The case

In view of the enormous financial demands, the federal government is likely to higher the tax burden sooner rather than later. In an interesting article in the NZZ of 26 February 2024, Hansueli Schöchli recaps it in a nutshell by asking what the state ought to spend money on and how it intends to finance this expenditure – it just so happens that these are also the two key questions in politics.

Source: today’s NZZ page 25 (worth reading)

The commentary

The federal treasury is currently under particularly intense pressure. According to the new financial planning data, the Confederation will need to make corrections of over CHF 3 billion per year as from 2027 in order to have a balanced budget, the two main expenditure items being the massive increase in expenditure for old age pension (AHV) as well as the Swiss army.

Other high additional expenditure (…) is also under discussion, (…) including reductions in health insurance premiums, climate subsidies, daycare subsidies, payments for poor EU regions and aid to the Ukraine.

Schöchli even goes as far as drawing up a ranking list of tax types based on their economic efficiency (minimising disincentives): l. Incentive taxes 2. Value-added tax 3. Land tax (taxes on land value) 4. Inheritance tax 5. Value-added tax 6. Income tax 7. Wealth tax 8.  Company profit tax, though this ranking should only be seen as a rough indication of trends.

The author also points out the most financially convenient way, i.e. cancellation of the debt brake: when the debt is increased, the financial problem is left to future generations to solve, though this would require an amendment to the Federal Constitution.

An alternative would be to ignore the Federal Constitution by excessively categorising budget items as “extraordinary” expenditure, for which a deficit is, in principle, permissible.

Schöchli adds that at around 16% the federal government’s current debt of a good CHF 120 billion is relatively low compared to Switzerland’s annual economic output when compared to the past and  other countries. A moderate increase in debt would, therefore, not be likely to worsen Switzerland’s credit rating.

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