On 15 February 2023, Switzerland’s federal government published finalised figures showing it spent CHF 4.3 billion more than it received in 2022. Excluding extraordinary expenses related to the Covid pandemic left an underlying operating deficit of CHF 1.9 billion, the first shortfall of this kind since 2005.
Switzerland’s federal government is required to operate under a system known as a debt brake. This requires it to achieve a breakeven budget over a business cycle, forcing it to generate and set aside excesses in good times to cover losses during lean periods.
The debt brake, introduced in 2006, was working well until 2020. Spending rose, but revenue rose more. In addition, the temporary central bank profits that flowed at least in part from attempts to weaken the franc in a global environment of ultra loose money, meant there was little pressure to reign in spending. But this all began to change in 2020.
Since then the numbers haven’t added up and the funds set aside for rainy days have been exhausted. To get the system back on track, in March 2022, the Federal Council, Switzerland’s executive, came up with a plan to run sufficiently positive budgets to balance to books within 13 years. However, this plan requires restraints on spending that are at odds with the current expectations of many in Switzerland’s parliament.
Last month, the Federal Council presented a plan to balance the 2024 budget. It also called on politicians, voters and the public sector to restrain expectations on government spending.
In addition, the federal government presented plans this week to help balance its books by reducing its funding of the Horizon research programme, raising military spending more slowly, taxing electric cars, reducing support for Swiss Rail, reclassifying the cost of supporting Ukrainian refugees as extraordinary spending and supporting the cantons less by cutting funding for unemployment benefits and state pensions. It also plans to reduce the share of direct federal taxes kept by cantons. These cuts will put pressure on cantons to come up with their own.