Learning from the rich how to save

Stabilisierungsprogramm 2017-2019
Federal councilor Ueli Maurer announces in Mai 2016 the 2017-2019 program to stabilize Swiss public finances. He is accompanied by the director of the finance administration and the government speaker.
Article as analysis
Although the Finance Department regularly announces budget surpluses, development aid is to be cut yet again. What is not being mentioned is that Switzerland's taxation and debt levels are among the lowest.

In May 2016 the Government approved the 2017-2019 stabilization programme. The Council of States discussed it in the autumn. The cuts disproportionately affect international cooperation, where about 25% of the savings will be made. More specifically, the cuts amount to CHF 150-250 million per year. Besides, international cooperation is one of the few areas in which cuts are being made not only in relation to the provisional financial plan, but in absolute terms.

Compared to the existing financial plan, the stabilization programme curtails federal spending by a total of CHF 800 million to CHF 1 billion annually. Adjustments are deemed necessary, given the strong appreciation of the Swiss franc and declining revenues – caused by slower economic growth – if debt brake requirements are to be met.

But the Confederation does not wish to take any revenue-side measures – new taxes or levies are out of the question.

The principal argument being wielded in favour of the asymmetrical burden of savings on international cooperation is that the latter had grown disproportionately in recent years. That growth was the outcome of a strategic decision by both Houses of Parliament to increase official development assistance to 0.5% of economic output. In short, the purely bookkeeping justification of the massive cuts fails to recognize Switzerland's long-term interest in a socially, environmentally and economically sustainable world.

In its Dispatch regarding the stabilization programme, the Federal Council affirms that international assistance "is still one of the fastest-growing areas within the Confederation." But given the deep cuts that were made under the 2016 budget, this growth is largely a return to the 2015 spending level. While international cooperation still accounted for a share of 5.5% of the overall 2015 budget, that share will contract to 4.9% by 2019.

CTR III-related tax losses increase savings pressure

The Federal Council expressly rules out new or higher taxes. With Corporate Tax Reform III (CTR III), revenues will again contract substantially as of 2019. In its CTR III proposal, the Federal Council reckons that the Confederation will forego CHF 1.3 billion in revenues. Yet it refuses to introduce any countervailing financial measures – a financial transaction tax, for example. The Parliament has even further expanded CTR III, for the benefit of enterprises. The effects are hard to quantify, but they will most likely lead to further substantive tax losses to the Confederation, cantons and communes.

The focus on tax incentives in the competition between locations is a source of irritation. In its 2015 foreign economic policy report, the Federal Council itself states that the level of taxation is just one among numerous factors considered when choosing a corporate location. It regards factors like infrastructure, quality of education, research, access to foreign markets and the level of political stability as no less important.

Redistribution at the expense of the poorest

Already in June 2016, Finance Minister Maurer nonetheless announced a second savings package (2018-2020). The government budget is to be cut by further CHF 3 billion. Together with the decision on CTR III, the maintenance of the expenditure ceiling for the army is also fuelling the call for savings measures in other areas. To rebalance the budget, the knee-jerk reaction is to turn to the funds intended for uncommitted expenditures. Unlike funds for committed expenditures, they do not result directly from provisions of law. Again, this particularly affects development cooperation, the lobby for which in Federal Berne is relatively weak. Besides, the effects of the cuts will supposedly be felt very far away from potential voters.

In the long run, however, the repercussions of savings at the expense of the poor will eventually catch up with us here in Switzerland. There is a dearth of resources for the fight against the causes of terror, conflict and poverty. And the possibilities for helping to combat the causes of flight and migration through development aid are being curtailed at an untimely juncture.

The question is hardly being raised let alone really answered regarding the degree of justification or the necessity of these massive spending cuts to the federal budget. After all, the Federal Council has consistently reported record surpluses in recent years. Most recently, for instance, the government's 2015 financial statements showed a CHF 2.3 billion surplus, far above the budgeted CHF 400 million. A CHF 1.7 billion surplus is projected for 2016. Admittedly this is mainly the result of special circumstances such as negative interest rates. Because ever more enterprises are paying their taxes in advance, revenues are considerably above budget. After adjustment for these special factors, the financial result is CHF -0.1 billion, which is in fact somewhat lower, though still substantially higher than the budgeted deficit of 0.5 billion.

Switzerland's public finances are also above average by international standards. Thus, the debt ratio for the 2015 government budget was a very low 34.4%, which was clearly below the average for countries in the European area (94.1% of GNI). Switzerland also has some of the lowest figures for taxation. At 27%, the fiscal quota is significantly below the OECD average of 34.4%.
In the light of these facts, it must be concluded that the Federal Council is deliberately creating the impression of the need for cost cutting, on the basis of poor forecasts. The economic outlook has indeed worsened recently, both globally and domestically. However, according to forecasts by the Confederation's expert group, the Swiss economy will post real growth of 1.8% in 2017. It is a very poor reflection on a Switzerland, which is wealthy and economically much better off than some of its neighbours, that it is making cuts that affect the poorest in developing countries.