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2016 | OriginalPaper | Buchkapitel

10. The Swiss “Success Story” of Sustainable Public Finance: Debt Restrictions and Budgeting Processes in the Swiss Confederation

verfasst von : Agata Zielniewicz

Erschienen in: Fiscal Rules - Limits on Governmental Deficits and Debt

Verlag: Springer International Publishing

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Abstract

In Switzerland, both the Confederation and all but one canton have introduced balanced budget provisions, the mechanisms of which vary to a large extent. On the federal level the so-called debt brake was first applied to the budget of 2003. Its goal is to keep the budget in balance while connecting matters of economic sustainability with anti-cyclical financial policy. Ever since, the debt ratio of the Swiss Confederation has been mainly decreasing. Furthermore, since 2006 the Swiss federal budget has been mostly in a surplus – even throughout the latest economic crises. The Swiss debt brake is considered a success story and has been referred to as a model for sustainable balanced budgeting which leads to a stabilization of public finances. The proof for the debt brake’s success in the light of the last economic crises and despite the demographic challenges to the social security system still remains to be seen in the years to come. The successful mechanism of Switzerland’s sustainable public finance, however, is not solely based on a debt brake but includes a variety of different financial instruments. It is based on a comprehensive approach to a responsible financial policy connecting the public tasks to their costs and covering a short-term as well as a medium and a long-term perspective. And it is supported by a political consensus to prevent an increase of public debt.

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Vorheriges Kapitel Limitations on Government Debt and Deficits in Romania

Nächstes Kapitel Limitations on Government Debt and Deficits in the United Kingdom

See Richard A. Musgrave: The Theory of Public Finance: A Study in Public Economy, New York 1959.

Carmen M. Reinhart, Vincent R. Reinhart and Kenneth S. Rogoff (2013), Public Debt Overhangs: Advanced-Economy Episodes Since 1800, Journal of Economic Perspectives, Volume 26, Nr. 3.

The question of which level of debt should not be exceeded, however, is very controversial, see Thomas Herndon, Michael Ash, Robert Pollin (2013), Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff, Political Economy Research Institute, University of Massachusetts Amhurst, April 2013.

In general the Swiss cantons and communes have their own independent budget authorities. However, the financial laws of the cantons might impose budgetary rules on the communes.

See Art. 128, para. 1 and Art. 196 no. 13 as well as Art. 130, para. 1 and Art. 196 no. 14 of the Federal Constitution. The Federal Council has suggested to cancel the time restriction bringing an end to the timely limnitation of tax powers regarding the two major Federal taxes.

See OECD, Economic Outlook No 94 – November 2013 – OECD Annual Projections, http://stats.oecd.org/Index.aspx?DataSetCode=EO94.

Keynesianism (named after the economist John Maynard Keynes) or its subsequently refined form known as neo-Keynesianism, is an economic model that defines the aggregate demand as a key variable in determining the production and employment. Various economic measures that are based on this model try to control the demand for goods and services in order to smooth economic fluctuations and to stabilize the economic cycle. To achieve this aim, during a recession taxes are lowered and/or government spending is boosted in order to increase the demand, whereas during an economic boom taxes are increased and/or government spending is reduced in order to create reserves, which in turn will be available in times of economic downturn. Keynesianism forms the basis of a counter-cyclical fiscal policy, thus a fiscal policy that is to act against the economic cycle.

René L. Frey: Finanzpolitik des Bundes seit 1960. Bericht im Auftrag der Kommission für Konjunkturfragen, Center for Research in Economics, Management and the Arts, Basel 2007, p. 6.

Art. 159 para. 3 lit. b of the Federal Constitution. This instrument is still in power, see Sect. 10.6.3.4.

Art. 100, para. 4 of the Federal Constitution (1999) now states: “The Confederation, the cantons and the communes shall take account of the economic situation in their revenue and expenditure policies” (highlighted by author).

On the mechanism of the debt brake see Sect. 10.5.2.

Compared to the definition of the cantons and municipalities in accordance with their harmonized accounting model HRM2, the federal debt additionally comprises “liabilities to general government”.

For the EU countries, the general government gross debt is defined as the consolidated general government gross debt at nominal (face) value, outstanding at the end of the year in the following categories of government liabilities (as defined in ESA2010): currency and deposits, debt securities and loans. The general government sector comprises the subsectors: central government, state government, local government and social security funds, see Eurostat, http://ec.europa.eu/eurostat/en/web/products-datasets/-/TSDDE410.

Shares and other equity (public companies) and financial derivatives are however not included.

The nominal GDP (unlike the real GDP) does not take into account inflation or deflation, thus is not adjusted for differences in price levels. It is mainly used to compare the GDP of different countries and regions.

Anja Baum, Cristina Checherita and Philipp Rother (2013), Debt and growth, New Evidence for the Euro Area, EZB Working Papers Series, Nr. 1450.

Report on the Swiss debt brake, 2014, p. 15.

The decrease of the federal debt has been nearly steady with some smaller increases in 2008, 2011 and 2012.

http://www.efv.admin.ch/d/downloads/publikationen/broschueren/Leporello_Schuldenbremse_d_Int.pdf.

In 2014, however, for the first time since the introduction of the debt brake, the federal budget concluded with a deficit of CHF 124 million. Compared to the previous year, revenue fell by 1.8 % to almost CHF 63.9 billion with the main reason being an unexpected decrease of taxes. This deficit was nevertheless in conformity with the debt brake, since the latter does not prevent deficits from occurring as long as they are within the limits of the anti-cyclical fiscal policy, see Sect. 10.5.2.

Botschaft zur Optimierung des Rechnungsmodells (NRM) of 12. November 2014, BBl 2014, page 9363.

Indebtedness also occurs when countries borrow money directly from a financial institution or a supranational organisation like the World Bank.

Federal Treasury Report, p. 19.

In an international comparison a quota of approx. 30 % for maturities longer than 10 years is relatively high. In 2014, for the second time in history the Confederation issued a 50-year bond which was increased to CHF 1.4 billion.

In 2014, for example, the Federal Treasury took on CHF 5.6 billion on the capital market.

It should be born in mind that the Swiss parliament is a so called “Milizparlament” which does not consist of professional members of Parliament.

Furthermore, it also applies to all too-big-to-fail entities, in particular big banks.

Article 8 of the “Performance Agreement (Leistungsvereinbarung) SBB-Bund 2013–2016”.

Andreas Lienhard, Agata Zielniewicz: Finanzverfassung, in A. Lienhard (ed.): Schweizerisches Bundesverwaltungsrecht, vol. X, Basel 2011.

Judgement of the Federal Court of 1 Dezember 2000, BGE 127 III 55.

On the revenue side, fiscal measures include in particular tax increases or decreases, as well as any introduction or abolition of taxes.

On the expenditure side, fiscal policy measures may consist in the increase or decrease of government procurement, the increase or decrease in the subsidy volume, the hiring or dismissal of federal or cantonal staff, or removal or dismantling of social benefits.

Andrea Bonanomi Feuz: Evaluation der Stabilisierungsmassnahmen 2008–2010, Die Volkswirtschaft 5-2012, p. 5.

During the boom, unemployment goes down, resulting in a reduction in support payments to unemployed. The contributions of employees to the unemployment insurance increase. This, in turn, leads to a reduction in the purchasing power income, which has a dampening effect on the growing economy. During the recession, however, a billion francs flow to the unemployed in order to replace their income without any financial contributions from their side. This increases the potential consumption, dampening the recession and stabilizing the economy. The automatic stabilization effect of the unemployment insurance in Switzerland corresponded to about 1 % of the country’s GDP in 2001, see Beat Hotz-Hart, Stefan Mäder, Patrick Vock : Volkswirtschaft der Schweiz, 3. ed., Zürich 2001,S. 503 f. and 281 ff.

The mechanism of the debt brake will be explained more in more detail in Sect. 10.5.2.

On the other hand, Switzerland might also benefit from foreign economic programs.

R. L. Frey, op. cit., p. 19, table 4; Franz Jaeger, Bernd Schips: Zur ökonomischen Analyse einer Staatsverschuldung, ergänzt durch eine beispielhafte Untersuchung der Verhältnisse in der Schweiz, Diessenhofen 1980; Daniel Lampart: Die konjunkturelle Ausrichtung der Schweizer Finanzpolitik im internationalen Vergleich, Ex-ante- vs. Ex-post-Betrachtung, KOF Arbeitspapiere Nr. 109, Zürich 2005; Jean-Christian Lambelet: L’économie suisse. Un essai d’interprétation et de synthèse. Paris/Genève 1993, p. 101.

During the financial and economic crisis of the years 2008–2010, the cantons and municipalities had additional expenses amounting to CHF 3.4 billion and reductions of revenues amounting to CHF 1.9 billion. Together with the federal measures, this led to an estimated growth momentum of about 0.6 % of the GDP.

Eidgenössische Finanzkontrolle, Die Konjunkturmassnahmen des Bundes 2008–2010, Evaluation der Konzeption und Umsetzung der Stabilisierungsmassnahmen, May 2012, Bern, p. 49.

The small effect was mainly due to long approval procedures and appeals related to the structural measures of the road infrastructure, but also to the fact that the construction industry in Switzerland did not suffer from the recession.

Zusatzbotschaft zum Bundesgesetz über das Konsolidierungs- und Aufgabenüberprüfungspaket 2014 (KAPG 2014), 19. September 2014, BBl 2014 8370 f.

Only the canton of Appenzell Inner Rhodes does not have any balanced budget provisions. However, it’s account presented a slightly positive result in 2014.

Nadia Yerly, The Political Economy of Budget Rules in the Twenty-Six Swiss Cantons: Institutional Analysis, Preferences and Performances, Fribourg 2013.

The EP 03 was supplemented by EP 04, an additional relief program with reductions of approx. 2 billion francs by 2008.

Frank Bodmer: The Swiss Debt Brake: How it works and what can go wrong, in: Swiss Journal of Economics and Statistics, Vol. 142, No. 3, pp. 307–330.

Extraordinary revenues are not taken into account. They might in particular result from the sale of assets.

Art. 13 of the Federal Budget Act.

Pierre-Alain Bruchez: A Modification of the HP-Filter Aiming at Reducing the End-Point Bias, in: Eidgenössische Finanzverwaltung, Working Paper ÖT/2003/3, Bern, August 2003.

Achim Truger : Eine Finanzpolitik im Interesse der nächsten Generationen, Gutachten des Instituts für Makroökonomie und Konjunkturforschung (IMK) in der Hans-Böckler-Stiftung, Düsseldorf im Auftrag der Sozialdemokratischen Partei der Schweiz, January 2012.

Report on the Debt brake, p. 17.

Report on the Debt brake, p. 45 ff.

This is usually due to the application of the principle of prudence in the process of budgeting.

In particular in 2008 the extraordinary payment requirements amounted to more than 11 billion francs.

Art. 17b, para. 1of the Federal Budget Act.

Laurence Devaud, Daniel Keller : 4. AVIG-Revision: Auswirkungen auf die Versicherten und die Finanzen der ALV, Die Volkswirtschaft, 1 September 2012.

According to Art.141 Abs. 2 lit. f of the Federal Act on the Federal Assembly (Parliament Act), the Federal Council shall explain in its dispatch the consequences for staffing and finances of the legislative enactment and its implementation on the federal government, cantons and communes, as well as the methods for meeting the costs, the influence on financial planning and the cost-benefit ratio.

It is to be noted that the Swiss system is a directorial system in which the government reaches its decisions as a collegial body.

French version: “L’Assemblée fédérale et le Conseil fédéral accordent autant que possible leurs décisions législatives avec leurs décisions financières.” German version: “Sie stimmen soweit möglich die Sach- und Finanzierungsentscheide aufeinander ab.”

Andreas Lienhard, Agata Zielniewicz : Finanzverfassung, in A. Lienhard (ed.): Schweizerisches Bundesverwaltungsrecht, vol. X, Basel 2011, para. 94. From 1 January 2016 on, the financing and cash flow statement will be reduced to the financing statement.

Art 43, para. 5, of the Federal Constitution requires that State tasks be fulfilled economically. Furthermore, pursuant to Art. 170 of the Federal Constitution, the Federal Assembly has to ensure that the measures of the Federal Council are reviewed for their effectiveness.

Art. 5, para. 1 of the Federal Constitution.

See Art. 9 of the model law.

Legislaturfinanzplan.

Report on the Debt brake, p. 75.

Expenditures which are established in the budget cannot be released unless the Federal Assembly decides to deliver a so-called “Voranschlagskredit”, which is a payment approval.

Art. 8, para. 1 of the Regulation of the Financial Budget.

The second report was issued in 2012, the third one is expected in 2016.

Neues Führungsmodell für die Bundesverwaltung (NFB).

Report on the Swiss debt brake, p. 28 f.

Art. 31 of the Federal Budget Act. On the cantonal level similar principles apply supplemented by the criterion of comparability to allow for a comparison between the different cantonal budgets.

Art. 31, para. 2 and Art. 47, para. 2 of the Federal Budget Act.

Art. 19, para. 1 lit. a of the Regulation of the Financial Budget.

Art. 19 para. 1 lit. b of the Regulation of the Financial Budget.

Baum, Anja, Cristina Checherita, Philipp Rother (2013), Debt and growth, New Evidence for the Euro Area, EZB Working Papers Series, Nr. 1450.

Bodmer, Frank. The Swiss Debt Brake: How it works and what can go wrong, in: Swiss Journal of Economics and Statistics, Vol. 142, No. 3.

Bonanomi Feuz, Andrea: Evaluation der Stabilisierungsmassnahmen 2008–2010, Die Volkswirtschaft 5:2012.

Bruchez, Pierre-Alain: A Modification of the HP-Filter Aiming at Reducing the End-Point Bias, in: Eidgenössische Finanzverwaltung, Working Paper ÖT/2003/3, Bern, August 2003.

Devaud, Laurence, Daniel Keller : 4. AVIG-Revision: Auswirkungen auf die Versicherten und die Finanzen der ALV, Die Volkswirtschaft, 1 September 2012.

Eidgenössische Finanzkontrolle, Die Konjunkturmassnahmen des Bundes 2008–2010, Evaluation der Konzeption und Umsetzung der Stabilisierungsmassnahmen, May 2012.

Eidgenösische Finanzverwaltung (FFA), Bundestresorerie, Tätigkeitsbericht (Federal Treasury Report) 2014, März 2015.

Frey, René L,. Finanzpolitik des Bundes seit 1960. Bericht im Auftrag der Kommission für Konjunkturfragen, Basel: Center for Research in Economics, Management and the Arts, 2007.

Jaeger, Franz, Bernd Schips: Zur ökonomischen Analyse einer Staatsverschuldung, ergänzt durch eine beispielhafte Untersuchung der Verhältnisse in der Schweiz. Diessenhofen, 1980.

Lambelet, Jean-Christian: L’économie suisse. Un essai d’interprétation et de synthèse. Paris/Genève, 1993.

Lampart, Daniel. Die konjunkturelle Ausrichtung der Schweizer Finanzpolitik im internationalen Vergleich, Ex-ante- vs. Ex-post-Betrachtung, KOF Arbeitspapiere Nr. 109, Zürich 2005.

Lienhard,Andreas, Agata Zielniewicz: Finanzverfassung, Schweizerisches Bundesverwaltungsrecht, Vol. X: Basel: Finanzrecht, 2011.

Herndon,Thomas, Michael Ash, Robert Pollin (2013), Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff, Political Economy Research Institute, University of Massachusetts Amhurst, April 2013.

Hart, Beat Hotz- Stefan Mäder, Patrick Vock. Volkswirtschaft der Schweiz, 3. ed., Zürich 2001.

Musgrave, Richard A., The Theory of Public Finance: A Study in Public Economy, New York 1959.

Reinhart, Carmen M., Vincent R. Reinhart und Kenneth S. Rogoff (2013)/Public Debt Overhangs: Advanced-Economy Episodes Since 1800, Journal of Economic Perspectives, volume 26, Nr. 3.

The Swiss debt brake: experiences and perspectives. Report of the Federal Council in response to the postulates of Graber Jean-Pierre (10.4022), Landolt (11.3547) and Fischer (12.3552), Bern, 29 November 2013.

Truger, Achim, Eine Finanzpolitik im Interesse der nächsten Generationen, Gutachten des Instituts für Makroökonomie und Konjunkturforschung (IMK) in der Hans-Böckler-Stiftung, Düsseldorf im Auftrag der Sozialdemokratischen Partei der Schweiz. January 2012.

Yerly,Nadia. The Political Economy of Budget Rules in the Twenty-Six Swiss Cantons: Institutional Analysis, Preferences and Performances, Fribourg 2013.

Titel: The Swiss “Success Story” of Sustainable Public Finance: Debt Restrictions and Budgeting Processes in the Swiss Confederation
verfasst von: Agata Zielniewicz
Verlag: Springer International Publishing
Buch: Fiscal Rules - Limits on Governmental Deficits and Debt
Print ISBN: 978-3-319-41203-0

Electronic ISBN: 978-3-319-41205-4

Copyright-Jahr: 2016
DOI: https://doi.org/10.1007/978-3-319-41205-4_10