Switzerland’s budget for 2016 is looking better than expected. Instead of a shortfall of CHF 0.5 billion, the latest figures forecast a surplus of CHF 1.7 billion.
Overall income was up CHF 1.2 billion and costs were down CHF 1.0 billion. This CHF 2.2 billion shift took the annual forecast from CHF -0.5 billion to CHF 1.7 billion.
The biggest driver of the change was the effect of negative interest rates.
Since last year the Swiss government has been issuing bonds with negative coupons so it now receives money on some of the money it borrows. Negative bond yields normally result from bond investors in the secondary market, paying more than the face value a bond, usually one with a low interest coupon. Last year the Swiss government went a step further and issued 10 year bonds with a negative coupon. These bonds come with a liability to to pay the Swiss government money, or in other words investors must pay for the privilege of lending, and the Swiss government makes money out of borrowing.
In addition, something that has had an even bigger impact, is companies paying their tax early to avoid paying negative interest on deposits resulting from the Swiss National Bank’s policy of negative rates, which some banks have been passing on to some of their clients. This windfall will reverse next year. If next year’s tax is paid this year it won’t be paid again next year.
After adjusting for the effects of these unusual negative interest rate elements, the 2016 budget moves back into the red to the tune of CHF -0.1 billion, only CHF 0.4 billion better than the CHF -0.5 billion expected earlier in the year. This remaining positive difference includes higher customs and other revenue, offset by disappointing VAT and fuel tax receipts.