General Government and finance. Switzerland s financial statistics for Annual report

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1 General Government and finance Neuchâtel 2018 Switzerland s financial statistics for 2016 Annual report

2 Switzerland s financial statistics for 2016 The Federal Finance Administration (FFA) prepares statistics on the government units and social security funds (financial statistics). The FFA is thus one of Switzerland s main public producers of statistics, together with the Federal Statistical Office (main supplier of Swiss statistics), the Swiss National Bank (bank, financial market and balance of payments statistics) as well as other federal agencies (special statistics) and the statistics offices of the cantons and various cities and towns. The aim of financial statistics is to present a transparent picture of the revenue, financial and asset situation of Switzerland s general government sector. Financial statistics provide the following services: consolidated and harmonized financial reporting of the Confederation, cantons, municipalities and social security funds on the basis of the accounting models of the Confederation and of the cantons (NAM, HAM2, etc.) with the objective of national comparability production and reporting of internationally comparable statistics on Switzerland s public finances in accordance with the International Monetary Fund standards (GFSM 2014) preparation of data on public finances as a basis for drawing up Switzerland s system of national accounts by the Federal Statistical Office specific evaluations and analyses of public finances and the national economy for the attention of the FFA and the Federal Department of Finance

3 Swiss Statistics Switzerland s financial statistics for 2016 Annual report Editor Contents Published by Federal Finance Administration, FFA Adrian Brülhart, FFA ; Financial Statistics Section, FFA Federal Finance Administration (FFA) Neuchâtel 2018

4 Published by: Federal Finance Administration (FFA) Information: tel Editor : Contents: Series: Topic : Original text: Translation: Layout: Front page: Printed: Federal Finance Administration, FFA Adrian Brülhart, FFA ; Financial Statistics Section, FFA Swiss Statistics 18 General Government and finance German FDF Language Services Financial Statistics Section, FFA DIAM Section, Prepress / Print, FSO DIAM Section, Prepress / Print in Switzerland / Cavelti AG, Gossau Copyright: FSO, Neuchâtel 2018 Reproduction with mention of source authorized (except for commercial purposes). Print format orders: Federal Statistical Office, CH-2010 Neuchâtel, tel , fax , order@bfs.admin.ch Price: Downloads: FSO number: CHF 19. (VAT not incl.) ISBN: (free of charge)

5 BRIEF SUMMARY Financial statistics annual report 2016 The Swiss public finance indicators (Confederation, cantons, municipalities and social security funds) are still among the lowest by international standards, which constitutes an important locational advantage. The tax-to-gdp ratio, which measures total tax receipts (tax and social security charges) in relation to nominal gross domestic product (GDP), rose from 27.6% in 2015 to 27.8% in The growth was attributable to the fact that the tax revenue of the cantons (+2.7%) and municipalities (+3.4%) grew much more strongly than nominal GDP (+0.9%). The cantons tax-to-gdp ratio thus rose from 6.8% to 7.0% and that of the municipalities went from 4.2% to 4.3%. In contrast, the Confederation s taxto-gdp ratio edged down by 0.1 percentage points to 9.8% in Furthermore, social security contributions remained unchanged relative to 2015 (6.7% of GDP). The general government expenditure ratio was still one of the lowest in the OECD region in It rose from 32.8% to 33.0% of GDP year on year due to the higher expenditure in the Confederation and social security funds sub-sectors. The increase in federal expenditure was reflected mainly in the task areas Economic affairs (+642 mn), Social security (+493 mn) and Defense (+226 mn). The strong growth in economic affairs was largely due to transportation (introduction of the railway infrastructure fund). Increased expenditure on migration, health insurance and old-age and survivors insurance was the main reason for the social security expenditure growth for both the Confederation and the cantons. The cantons expenditure in the area of health (particularly hospital services) also rose. Like the previous year, the general government s consolidated financing statement, prepared in accordance with international standards, showed a surplus in 2016, but it was down by 1.7 billion. The deficit/surplus ratio thus fell from +0.6% to +0.4% of nominal GDP, due primarily to the lower net lending/borrowing of both the Confederation and social security funds sub-sectors. Compared with 2015, the Confederation s net lending/borrowing fell by 1.6 billion with stable revenue. In the case of social security funds, the decline amounted to 0.9 billion, due mainly to higher expenditure on social benefits. Relative to 2015, the surplus ratio of social security funds dropped from +0.3% to +0.1% of GDP in Furthermore, the municipalities exhibited negative net lending/borrowing for the eighth time in succession, while the cantons financing statement ended the year in positive territory. The cantons net lending/borrowing improved by around half a billion year on year. The general government s Maastricht debt fell by 4.9 billion to billion in 2016, meaning that the debt reduction trend continued. In 2016, the general government s debt ratio declined by one percentage point to 29.0% of GDP and remained significantly below the 60% mark which is important for the euro area. The Confederation s debt decreased from 98.2 billion to 92.7 billion. The decline in debt, which is primarily reflected in debt securities, was largely attributable to the redemption of Confederation bonds. As a result, the Confederation s debt ratio fell by one percentage point overall. The debt ratios of the cantons, municipalities and social security funds meanwhile remained virtually unchanged. 3

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7 BRIEF SUMMARY Financial statistics annual report 2016 Important figures according to the GFS Model CHF mn General government Revenue Expenditure Net lending/borrowing Tax-to-GDP ratio Debt ratio (Maastricht) ² Confederation¹ Revenue Expenditure Net lending/borrowing Tax-to-GDP ratio Debt ratio (Maastricht) ² Cantons Revenue Expenditure Net lending/borrowing Tax-to-GDP ratio Debt ratio (Maastricht) ² Municipalities Revenue Expenditure Net lending/borrowing Tax-to-GDP ratio Debt ratio (Maastricht) ² Social security funds Revenue Expenditure Net lending/borrowing Tax-to-GDP ratio Debt ratio (Maastricht) ² incl. separate accounts 2 according to the Maastricht definition 5

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9 TABLE OF CONTENTS Financial statistics annual report Scope of the 2016 financial statistics 17 Page 2 The FS Model General government Confederation Cantonal distribution of federal funds Cantons Municipalities Social security funds Financial indicators and ratios 74 3 Analysis Reduction in debt thanks to economic growth and fiscal rules Clear rift in Switzerland 81 4 The GFS Model General government Confederation Cantons Municipalities Social security funds Indicators Methodological foundations Changes and revisions International standards for financial statistics and accounting Models Sectoring Consolidation Glossary 119

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11 TABLE OF CONTENTS Financial statistics annual report 2016 Page Figures Figure 1: Trend of the overall fiscal balance with the FS Model 26 Figure 2: Expenditure by function general government, Figure 3: Expenditure by function Confederation, Figure 4: Expenditure by function cantons, Figure 5: Expenditure by function municipalities, Figure 6: Expenditure by function social security funds, Figure 7: Fiscal capacity utilization by canton, Figure 8: Trend of gross debt with the FS Model 80 Figure 9: Total debt by region 81 Figure 10: Lake Geneva debt 82 Figure 11: Eastern Switzerland debt 83 Figure 12: Expenditure by government function general government, Figure 13: Expenditure by government function Confederation, Figure 14: Expenditure by government function cantons, Figure 15: Expenditure by government function municipalities, Figure 16: Expenditure by government function social security funds, Figure 17: Tax-to-GDP ratio and general government expenditure ratio trends with the GFS Model 102 Figure 18: Trends of the gross debt ratio and the Maastricht debt ratio 102 Figure 19: Classification in accordance with the GFSM Figure 20: Model structure with the GFS Model 111 Figure 21: Net acquisition of non-financial assets 112 Figure 22: Government expenditure 112 Figure 23: Institutional sectors 113 Figure 24: General government sub-sectors 114 Figure 25: Decision tree for allocation to the general government sector 115 Figure 26: Consolidation rules for financial statistics 117

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13 TABLE OF CONTENTS Financial statistics annual report 2016 Page Tables FS Model Financial statements general government 28 Statement of financial performance general government 28 Financing statement general government 29 Statement of financial position general government 30 Expenditure by function general government 31 Financial statements Confederation 35 Statement of financial performance Confederation 35 Financing statement Confederation 36 Statement of financial position Confederation 37 Expenditure by function Confederation 37 Tax revenue Confederation 38 Debt Confederation 39 Transfers by nature Confederation to social security funds 39 Transfers by function Confederation to social security funds 39 Transfers by nature Confederation to cantons 40 Transfers by function Confederation to cantons 40 Transfers by nature Confederation to municipalities 41 Transfers by function Confederation to municipalities 41 Cantonal receipts from federal sources, Cantonal receipts from federal sources, 2016, per capita 46 Financial statements cantons 51 Statement of financial performance cantons 51 Financing statement cantons 52 Statement of financial position cantons 53 Expenditure by function cantons 54 Tax revenue cantons 54 Debt cantons 55 Transfers by nature between the cantons 55 Transfers by function between the cantons 55 Fiscal equalization and cost compensation cantons 56 Transfers by nature cantons to municipalities 56 Transfers by function cantons to municipalities 57 Statement of financial performance and financing statement, cantons Statement of financial position, cantons Financial statements municipalities 61 Statement of financial performance municipalities 61 Financing statement municipalities 62 Statement of financial position municipalities 63 Expenditure by function municipalities 64 Tax revenue municipalities 64 Debt municipalities 64 Statement of financial performance and financing statement, cities and cantonal capitals Statement of financial position, cities and cantonal capitals Financial statements social security funds 70 Statement of financial performance social security funds 70 Financing statement social security funds 71 Statement of financial position social security funds 72

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15 TABLE OF CONTENTS Financial statistics annual report 2016 Page Expenditure by function social security funds 73 Statement of financial performance and financing statement, social security funds Statement of financial position, social security funds Financial ratios general government 76 Financial ratios Confederation 76 Financial ratios cantons 76 Financial ratios municipalities 76 Financial ratios social security funds 76 Fiscal capacity utilization by canton 77 Tables GFS Model Statement of non-financial transactions general government 86 Balance sheet general government 86 Expenditure by government function general government 86 Statement of non-financial transactions Confederation 89 Balance sheet Confederation 89 Expenditure by government function Confederation 89 Statement of non-financial transactions cantons 92 Balance sheet cantons 92 Expenditure by government function cantons 92 Statement of non-financial transactions municipalities 95 Balance sheet municipalities 95 Expenditure by government function municipalities 95 Statement of non-financial transactions social security funds 98 Balance sheet social security funds 98 Expenditure by government function social security funds 99 Indicators with the GFS Model 101 Financial ratios 108

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17 TABLE OF CONTENTS Financial statistics annual report 2016 Abbreviations AHV Old-age and survivors insurance ALV Unemployment insurance GDP Gross domestic product COFOG Classification of Outlays by Function of Government EO Compensation for loss of earnings ESA 2010 European System of Accounts (2010) Eurostat Statistical office of the European Union FL Agriculture family allowances FS Financial statistics with reference to the HAM2 GFS Financial statistics with reference to the GFSM 2014 GFSM 2014 Government Finance Statistics Manual 2014 issued by the International Monetary Fund IPSAS International Public Sector Accounting Standards ISCED International Standard Classification of Education IV Disability insurance IMF International Monetary Fund HAM2 Harmonized Accounting Model for the Cantons and Municipalities NFE New system of fiscal equalization and division of tasks between the Confederation and the cantons NAM New Accounting Model of the Confederation OECD Organisation for Economic Co-operation and Development SNA System of National Accounts SNB Swiss National Bank

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19 01 SCOPE OF THE 2016 FINANCIAL STATISTICS The survey population for the federal financial statistics is formed by the financial results of the general government sector, i.e. Confederation, cantons (incl. concordats), municipalities (incl. primarily tax-financed special purpose entities) and social security funds. Delimitation of the general government sector is in accordance with the European System of Accounts (ESA 2010), which also applies to Switzerland. The surveys cover the statements of financial position, as well as the statements of financial performance and statements of investments of the government units (of the general government sector). In accordance with the ESA 2010, the general government sector (S. 13) comprises the following four economic sub-sectors: Confederation (S. 1311), cantons (S. 1312), municipalities (S. 1313) and social security funds (S. 1314). In addition to the 26 cantons, the cantons sub-sector in Switzerland also includes concordats where these meet the ESA 2010 sectoring criteria. A concordat is a contract that governs intercantonal cooperation in certain public task areas (e.g. education). This serves to harmonize cantonal responsibilities within federal Switzerland without the need for federal regulations. A concordat can include just a few cantons or all cantons. Since 2008, the concordats results have been reported separately in the financial statistics; prior to this, they were allocated proportionately to the individual cantons involved. The municipalities sub-sector includes not only the political municipalities themselves, but also the institutional entities controlled by these that are primarily tax-financed (school communities, special purpose entities, corporations, institutions and funds). The survey scope has been expanded significantly relative to the last years reports. Whereas in recent years it surveyed around 40% of all political municipalities, the figure for fiscal 2016 was around 64% for the first time. This corresponds to a share of the resident population of just under 83%. The 1,470 political municipalities surveyed include the cantonal capitals, the cities of the Swiss Union of Cities and all municipalities in the cantons of Aargau, Appenzell Innerrhoden, Appenzell Ausserrhoden, Basel Landschaft, Basel Stadt, Bern, Geneva, Glarus, Luzern, Neuchâtel, Nidwalden, Obwalden, Schaffhausen, Schwyz, Uri, Zug and Zurich. The municipalities of the other cantons are surveyed on a random sample basis. In order to review and improve the random sampling concept, the Financial Statistics Section carried out complete surveys in the past. Furthermore, relative to last year s report, the size of the cities and cantonal capitals has remained the same, as no new municipality with more than 20,000 inhabitants had been added to the permanent resident population statistics of the Federal Statistical Office (FSO) at the end of The Financial Statistics Section last extended the scope of cities and cantonal capitals in 2015 to include the municipality of Nyon in the canton of Vaud. The following table shows which institutional entities are included or not in the general government accounts. This means that the evaluations made as part of the financial statistics do not necessarily correspond to the financial statements published for the individual government units. Government unit Added administrative units Surveyed Confederation Railway infrastructure fund (RIF) Swiss Federal Institutes of Technology Domain Swiss Alcohol Board Swiss Federal Institute for Vocational Education and Training Swiss Federal Institute of Metrology (METAS) Fund for major railway projects Building Foundation for International Organisations (FIPOI) Infrastructure fund Feed-in remuneration at cost (CRF) Pro Helvetia Swiss National Science Foundation Swiss National Museum Switzerland Tourism from 2016 from 2000, in state financial statements before that , in state financial statements before that from 2007 from 2013, in state financial statements before that , replaced by RIF from from 2007 from 2007 from 2010, in state financial statements before that from

20 01 Scope of the 2016 financial statistics Government unit Added administrative units Eliminated administrative units Cantons ZH Zurich Legacies/foundations Psychiatric clinics Hospitals Transportation companies BE Bern University third-party funds Lottery fund Regional employment center (RAV) Sport-Toto fund University University of applied sciences (incl. third-party funds) Teacher training college (incl. third-party funds) LU Luzern LUSTAT Statistik, Luzern Teacher training college Regional employment center (RAV) University Churches Psychiatric clinics UR Uri Unemployment fund SZ Schwyz Lottery and Sport-Toto fund Teacher training college OW Obwalden Unemployment fund NW Nidwalden Churches GL Glarus Protection of cultural heritage fund Lottery fund Sport-Toto fund Cantonal unemployment fund Cantonal compensation fund Cantonal hospital ZG Zug Lottery fund Regional employment center (RAV) Segregated fund Sport-Toto fund Teacher training college FR Fribourg University third-party funds Regional employment center (RAV) Driver and vehicle licensing office SO Solothurn Lottery fund Sport-Toto fund BS Basel Stadt University BL Basel Landschaft Compensation fund Fishery conservation fund H2 construction fund Infrastructure fund Project fund Shelter fund Swisslos fund Swisslos sport fund Animal diseases fund Business development fund Fund for the promotion of housing construction SH Schaffhausen Cantonal shelter exemption tax fund (EAG fund) Lottery winnings fund Regional employment center (RAV) Social fund Sport-Toto fund AR AI Appenzell Ausserrhoden Appenzell Innerrhoden Trogen cantonal school Regional employment center (RAV) Waste accounts Secondary school (Gymnasium) Regional employment center (RAV) Road accounts Outpatient psychiatric clinic Unemployment fund Emergency medical services Retirement home Unemployment fund Churches Unemployment fund Emergency medical services Waste plant Wastewater plants Unemployment fund District heating plant Oberegg retirement home 18

21 01 Scope of the 2016 financial statistics Government unit Added administrative units Eliminated administrative units Cantons SG St. Gallen St. Gallen teacher training college Rhine fund St. Gallen cultural foundation University GR Graubünden Healthcare and social work training center Care homes Institute of Technology and Economics (HTW) Teacher training college Unemployment fund Administrative costs for unemployment fund AG Aargau Unemployment fund TG Thurgau Regional employment center (RAV) PHTG, Thurgau University of Teacher Education TI Ticino ASP teacher training college University third-party funds University of Applied Sciences and Arts of Southern Switzerland (SUPSI) Withholding tax (in accordance with Art. 35 of the Tax Harmonisation Act) Università della Svizzera italiana USI VD Vaud University third-party funds ECAL, University of Art and Design HEIG, School of Management and Engineering HESAV, School of Health Sciences University of Teacher Education Canton of Vaud (HEP Vaud) Loterie romande Regional employment center (RAV) Sport-Toto University Psychiatric services Churches VS Valais University of Applied Sciences (entered under concordats) NE Neuchâtel University third-party funds Loterie romande Driver and vehicle licensing office SCAN University GE Geneva Etablissements publics pour l intégration EPI Hautes écoles spécialisées HES Hospice général Loterie romande Sport-Toto fund University JU Jura Loterie romande 19

22 01 Scope of the 2016 financial statistics Government unit Cantonal concordats Driver and vehicle licensing offices Prison Upper secondary schools Post-secondary vocational education Universities Teacher training colleges Universities of applied sciences Health Regional employment center (RAV) Motorways Dairy industry advisory services Labor market committee Added administrative units MfZ-Prüfstation beider Basel Verkehrssicherheitszentrum OW/NW Bostadel Penitentiary concordat of North West and Central Switzerland Interstaatliche Maturitätsschule St. Gallen Gymnase intercantonale de la Broye Hitzkirch police training college Maienfeld forestry training center Swiss Agency of Accreditation and Quality Assurance (AAQ) Swiss Accreditation Council BE, JU, NE teacher training colleges University of Applied Sciences of Special Needs Education (HfH) Western Switzerland (HES-SO) Eastern Switzerland (FHO) Central Switzerland (FHZ) Northwestern Switzerland (FHNW) University of Applied Arts ARC Laboratory of UR, SZ, OW, NW Intercantonal laboratory of AR, AI, GL, SH OW/NW regional employment center (RAV) Northwestern Switzerland motorways (NSNW) BL, BS, AG, SO CASEi Tripartite labor market committee (TAK), authority for the cantons UR, OW, NW and SZ 20

23 01 Scope of the 2016 financial statistics Government unit Added administrative units Eliminated administrative units Cities and cantonal capitals AG Aarau Vocational training school AG Wettingen AI Appenzell Waste management Fire service activities Bauverwaltung Inneres Land Retirement homes AR Herisau Wastewater treatment plant BE Bern Retirement home Medical police BE Biel Retirement home BE Köniz Water supply BE Thun BL Allschwil BL Liestal Water supply BS Riehen FR Bulle Foyers communaux FR Fribourg GE Carouge GE Geneva GE Lancy GE Meyrin GE Vernier GL Glarus GR Chur Wastewater treatment plant JU Delémont Electricity supply Natural gas supply Water supply LU Emmen LU Kriens Nursing homes LU Luzern city NE La Chaux-de-Fonds Retirement home Outpatient services NE Neuchâtel Outpatient services NW Stans Water supply OW Sarnen SO Solothurn Mettweg residential building SH Schaffhausen Retirement homes Spitex SG Rapperswil-Jona Wastewater treatment plant SG St. Gallen Wastewater treatment plant Landfill Residential home for the elderly SG Wil Wastewater treatment plant SZ Schwyz Retirement and nursing home 21

24 01 Scope of the 2016 financial statistics Government unit Added administrative units Eliminated administrative units Cities and cantonal capitals TG Frauenfeld Therapeutic education center (HPZ) Primary school Secondary school TG Kreuzlingen Primary school Secondary school TI Bellinzona Nursing home TI Lugano Nursing home UR Altdorf VD Lausanne Antenna installation Electricity Petroleum and natural gas Churches Medical services group Water supply VD Nyon Electricity Petroleum and natural gas Churches Water supply VD Montreux Churches VD Yverdon-les-Bains Wastewater treatment plant Electricity Petroleum and natural gas Churches Water supply VD Renens Churches VS Sion Outpatient services ZG Baar ZG Zug ZH Dietikon Retirement home ZH Dübendorf Secondary school Retirement home Churches Convalescent and nursing home services Spitex ZH Horgen Retirement home Wastewater treatment plant Power stations District heating Natural gas supply Spitex Waterworks ZH Uster Secondary school Wastewater treatment plant Convalescent and nursing home services Spitex ZH Wädenswil Retirement home Wastewater treatment plant Waterworks ZH Wetzikon Lower secondary school community Retirement home Wastewater treatment plant Power stations Electricity, gas, steam and hot water supply Natural gas supply Public utilities Waterworks 22

25 01 Scope of the 2016 financial statistics Government unit Added administrative units Eliminated administrative units Cities and cantonal capitals ZH Winterthur Wastewater treatment plant Electricity Petroleum and natural gas Waste incineration plan Convalescent and nursing home services Non-electrical energy Other commercial operations Spitex Transportation association Water supply ZH Zurich Waste management Retirement home Wastewater treatment plant Electricity Waste incineration plan Convalescent and nursing home services Non-electrical energy Hospital Transportation association Water supply Social security funds Old-age and survivors insurance (AHV) Disability insurance (IV) Compensation for loss of earnings (EO) Agriculture family allowances (FL) Unemployment insurance (ALV) 23

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27 02 THE FS MODEL The federal financial statistics seek to present the finances of the government units on a comparable basis. This is done at national level with the FS Model, which is based on the Harmonized Accounting Model for the Cantons and Municipalities (HAM2). The 2016 results at national level are presented below. 21 General government The government units finances were sound in With the exception of 2014, when the ordinary surplus (+0.7 bn) was slightly lower, the general government sector has achieved an ordinary financing surplus of several billion francs since It posted an ordinary fiscal balance of 3 billion in Gross debt with reference to the HAM2 has fallen in recent years thanks to surpluses and favorable refinancing opportunities, and it was reduced by 3.3 billion to billion year on year in With total receipts of billion, the general government sector s consolidated financing statement showed a total surplus of 2.8 billion in Relative to the financing statement, the result in the statement of financial performance (+2.4 bn) was impacted by items not recognized in the financing statement such as depreciation and value adjustments, as well as higher extraordinary expenses. The extraordinary expenses of 2 billion consisted mainly of contributions to restructure cantonal and municipal pension funds (826 mn), net expense for net assets/ equity (942 mn), extraordinary financial expense (92 mn) and additional depreciation. The extraordinary revenue of around 935 million resulted from revaluations recognized in the statement of financial performance in connection with the debt restructuring liquidation of Swissair and from concession revenue determined within the framework of the auction for the new allocation of mobile radio licenses in 2012 in the case of the Confederation. Moreover, there were withdrawals from net assets/ equity in the case of the cantons and municipalities. Overall, the extraordinary result for the general government sector s 2016 statement of financial performance was a deficit of 1 billion. It should be noted that not all government units at the cantonal and municipal level have yet made the distinction between the ordinary and extraordinary result as defined in the HAM2. To ensure that the ordinary result is not distorted, the Financial Statistics Section seeks to post extraordinary transactions as such insofar as possible. The general government sector s 2016 statement of financial performance posted a negative operating result of 2.2 billion. Operating revenue was up by 1%, while operating expenses, mainly in the transfer area (particularly depreciation on investment contributions, value adjustments on loans and financial interests, as well as contributions to public authorities and third parties), grew at an above-average rate. Operating expenses increased by 2.7% relative to the previous year. Coming in at billion in 2016, tax revenue, the largest revenue component, accounted for 88.5% of operating revenue. It grew by 2% relative to 2015, primarily in the areas of direct taxes, natural persons (+1.2 bn) and direct taxes, legal entities (+1.6 bn). The composition of tax revenue did not change significantly in The largest components were direct taxes, natural persons (35.1%), other duties (25.1%), consumption taxes (17.7%) and direct taxes, legal entities (12.4%). Other direct taxes, which accounted for 6.6% in 2016, increased mainly because of capital gains tax revenue, which rose by 153 million to 2.2 billion. Under other duties, contributions by employers and insured persons were up by 469 million, or 1.1%. Revenue from exchange transactions accounted for 8.7% of operating revenue in 2016 and was down by 0.6%. Revenue from royalties and concessions fell even more sharply, declining by 1.1 billion to 2.6 billion relative to This was due to the fact that the Confederation and the cantons once again received a regular profit distribution of 1 billion from the SNB in The profit distribution was twice as high the previous year because of the SNB s high profits in Moreover, withdrawals from funds and special financing were down by a fifth relative to The decline occurred mainly in the Confederation sub-sector, and particularly in the case of the Swiss National Science Foundation (SNSF). 25

28 02 The FS Model Figure 1: Trend of the overall fiscal balance with the FS Model in CHF mn Confederation Cantons General government Municipalities Social security funds The general government posted deficits throughout the 1990s. Following a cyclical interim high from 2000 to 2002 and a subsequent deterioration of the finan cial situation, a period of surpluses set in from In 2016, the general government sector posted a surplus of around 2.8 billion. Compared with the previous year, financing statement receipts increased by 0.5%, while expenditure remained at roughly the same level. The breakdown of expenditure by task area shows that around two fifths (86.2 billion) of total expenditure went to Social security. In this area, the changes in expenditure resulted essentially from the increase in the number of pensions and the pension adjustments of individual social security funds. Relative to 2015, the government units increased their funds for old-age and survivors insurance (AHV) benefits and supplementary benefits, and incurred additional expenditure to combat unemployment, as well as for social welfare and asylum affairs. Overall, the Old age and survivors, Unemployment and Social welfare and asylum affairs functional groups accounted for 84.5% of the additional expenditure for Social security. Education was the second-largest area of expenditure. Around three quarters of the 37.2 billion spent in 2016 went to Obligatory schooling (44.6%), Tertiary-level institutions (21.7%) and Research (10%). In 2016, the general government spent the fourth-biggest amount on the Public order and security, defense task area. This expenditure of 16.3 billion was up by 1.4% on the previous year. Primarily higher defense expenditure was concerned. The contributions to restructure cantonal and municipal pension funds dragged down the General administration task area considerably less than the previous year, with expenditure falling by 15%. The second-biggest reduction in percentage terms and absolute figures was recorded under National economy (-5.6%; -495 mn). The reduction in expenditure was reflected in the Banks and insurance companies functional group, and was associated with one-time high investment expenditure in 2015, when Zürcher Kantonalbank obtained 500 million in additional endowment capital from the canton of Zurich. 26

29 02 The FS Model Figure 2: Expenditure by function general government, 2016 Total expenditure: CHF Finances and taxes 2.7% National economy 3.9% Protection of the environment and spatial planning 2.9% General administration 7.5% Public order and security, defense 7.7% Transportation and telecommunications 7.8% Education 17.5% Social security 40.5% Culture, sport and leisure, church 2.6% Health 6.9% The expenditure for individual insurers in the "Social security" task area depends on demographic developments and the associated number of pensions. The Financial Statistics Section publishes data for the statements of financial position of the municipalities and the general government sector only from 2008 onward in its FS Model, as the municipalities data prior to this was incomplete or not compiled at all. Total assets amounted to billion at the end of 2016, which equates to an increase of 3.3 billion on the previous year. Like in previous years, the changeover to the new accounting model (HAM2) was jointly responsible for the rise in This leads to revaluations of items in the statement of financial position. Aside from changes in the value of administrative assets (usually increases in value), non-administrative assets can also be revalued. These adjustments to the statement of financial position thus result in higher net assets/equity. The general government sector s tangible fixed assets grew by a total of 2.5 billion. The increase amounted to 376 million in canton of Bern municipalities alone, which switched to the HAM2 in Relative to 2015, the general government s administrative assets and non-administrative assets were up by 0.9% each. While receivables (+1.3 bn), financial investments and tangible fixed assets (+2.5 bn each) were the main items to surge in the case of non-administrative assets, primarily cash and cash equivalents (-3.5 bn) plunged. Overall, the increase in non-administrative assets amounted to 1.4 billion. The general government sector had liabilities of billion at the end of 2016, around 75% of which was gross debt. Gross debt posted a year-on-year decline of 1.5%. This was attributable primarily to long-term financial liabilities, which fell by a total of 7.4 billion, whereby 6.2 billion was attributable to the redemption of Confederation bonds alone. In contrast, the general government sector s current liabilities (+1.8 bn) and short-term financial liabilities (+2.3 bn) were higher at the end of Moreover, the other components of the general government sector s liabilities changed as follows: short-term provisions were stable at 2.3 billion, while long-term provisions rose by 1.3 billion to 26.5 billion. In contrast, restricted funds in liabilities fell by 1.3 billion, due mainly to the municipal level. Accrued expenses and deferred income were likewise down. They amounted to 21 billion at the end of 2016, representing a decline of 3.5% on the previous year. 27

30 02 The FS Model Financial statements general government CHF mn Statement of financial performance Revenue Expenses Surplus/deficit Financing statement Receipts Expenditure Overall fiscal balance Statement of financial position Non-administrative assets Administrative assets Liabilities Net assets/equity Total assets Statement of financial performance general government CHF Operating expenses Personnel expenses General, administrative and operating expenses Defense expenses Depreciation, administrative assets Net expense for funds and special financing Transfer expenses Operating revenue Tax revenue Royalties and concessions Revenue from exchange transactions Miscellaneous revenue Withdrawals from funds and special financing Transfer revenue Operating result Financial expense Financial revenue Financial result Ordinary result Extraordinary expenses Extraordinary revenue Extraordinary result Surplus/deficit

31 02 The FS Model Financing statement general government CHF Operating expenditure Personnel expenditure General, administrative and operating expenditure Defense expenditure Transfer expenditure Operating receipts Tax receipts Royalties and concessions Receipts from exchange transactions Miscellaneous receipts Transfer receipts Operating result Financial expenditure Financial receipts Financial result Investment expenditure Tangible fixed assets Investments on behalf of third parties Investments, intangible fixed assets Loans and financial interests n.e.c Loans Financial interests and share capital Investment contributions Investment receipts Transfer of tangible fixed assets to non-administrative assets Reimbursements Disposal of intangible fixed assets Repayment of loans and financial interests n.e.c Loan repayment Transfer of financial interests Repayment of own investment contributions Investment contributions Net investments Ordinary result Extraordinary expenditure Extraordinary expenditure Extraordinary investment expenditure Extraordinary receipts Extraordinary receipts Extraordinary investment receipts Extraordinary result Overall fiscal balance

32 02 The FS Model Statement of financial position general government CHF Assets Non-administrative assets Cash and cash equivalents Receivables Short-term financial investments Prepaid expenses and accrued income Inventories and work in progress Financial investments Tangible fixed assets, NAA Receivables from special financing and funds in liabilities Administrative assets Tangible fixed assets, AA Inventories, AA Intangible fixed assets Loans and financial interests n.e.c Loans Financial interests, share capital Investment contributions Assets due from government units 0 Accumulated additional depreciation and amortization Liabilities and equity Liabilities Current liabilities Short-term financial liabilities Accrued expenses and deferred income Short-term provisions Long-term financial liabilities Liabilities toward government units Long-term provisions Restricted funds Net assets/equity Financing and funds in net assets/equity Global budget area reserves Advance financing Restatement reserve Revaluation reserve, non-administrative assets Other net assets/equity Accumulated surplus/deficit

33 02 The FS Model Expenditure by function general government CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes

34 02 The FS Model 22 Confederation The Confederation s financial situation deteriorated in 2016 relative to the previous year. The Confederation s total receipts grew by 0.2%, with nominal economic growth of 0.9%. As expenditure grew much more strongly than the previous year (+1.4%), a lower financing surplus resulted. It amounted to 1.9 billion in The Confederation's consolidated statement of financial performance for 2016 posted a surplus of 248 million. This was some 2.5 billion less than the previous year because of higher expenses. Extraordinary transactions occurred only on the revenue side in The extraordinary revenue of 300 million was derived from concession revenue from the allocation of mobile radio licenses, Competition Commission fines and loan revaluations associated with the debt restructuring liquidation of Swissair. The financing statement additionally recognized extraordinary investment receipts of around 165 million likewise stemming from the debt restructuring liquidation. The major difference between the operating result in the financing statement and the statement of financial performance is due to statement of financial performance components that are not recognized in the financing statement. In 2016, the operating result in the financing statement was 8.2 billion higher than that in the statement of financial performance (314 mn). Operating expenses (67.3 bn) were considerably higher than operating expenditure (58.3 bn) because of depreciation and value adjustments. The difference of 750 million between operating receipts (66.8 bn) and operating revenue (67.6 bn) was relatively small. Operating revenue grew by 0.5 billion relative to 2015 on the back of a robust increase in tax revenue. The tax revenue of some 64.4 billion was comprised of direct taxes, consumption taxes, other taxes and customs revenue. Year on year, revenue from direct taxes, natural persons grew by 2% and that from direct taxes, legal entities rose by 8.2%. Moreover, revenue from other direct taxes was up by 1.2%. In the case of other direct taxes, it is particularly noteworthy that the withholding tax revenue figures shown in the financial statistics are not the same as those for the Confederation as parent entity. This is because, effective since 2013, the Confederation recognizes interest and fines associated with value added tax and stamp duty (both sub-sections of consumption taxes) under the respective underlying tax revenue. The Financial Statistics Section makes corrections for this change of practice with the help of additional information from the Federal Tax Administration. Consumption taxes, which accounted for around half of 2016 tax revenue, were 1% lower than the previous year. The decline was due mainly to lower stamp duty revenue. Relative to 2015, stamp duty revenue fell by 372 million, due essentially to the smaller volume of taxed stock market transactions. Like the previous year, transfer expenses accounted for around three quarters of the Confederation s operating expenses in 2016, followed by personnel expenses at 11.6% and general, administrative and operating expenses at 8%. The depreciation on administrative assets, the fourth-largest component of operating expenses (3.7%), amounted to almost 2.5 billion in In the case of the Confederation, the depreciation and amortization of tangible and intangible fixed assets occur primarily in the administrative units with major investments (FEDRO, FOBL and armasuisse Immobilien). In 2016, depreciation on administrative assets accounted for 27.7% of the difference between operating expenses and operating expenditure. The main difference between the two is reflected in ordinary transfer expenses (64.2%), which were around 5.8 billion higher than ordinary transfer expenditure. These concern mainly value adjustments on financial interests as well as on investment contributions. Value adjustments on investment contributions arise particularly in the case of transportation infrastructures (e.g. via the newly created railway infrastructure fund) and within the framework of the building program. The Confederation s main transfer recipients are the social security funds and the cantons. The ordinary and extraordinary transfer expenditure of the Confederation for the social security funds was allocated to the Social security task area. Receipt shares accounted for 23% of the Confederation s transfers, and current contributions accounted for 77%. The growth was driven mainly by the Confederation s payments to old-age and survivors insurance, as the Confederation bears 19.55% of the annual AHV expenditure. The federal contribution to disability insurance amounted to 37.7% of annual IV expenditure up to The Confederation s contribution has been linked to the increase in value added tax revenue since January 2014, whereby the development of wages and prices is additionally taken into account with a discount factor. By linking the federal contribution to value added tax instead of IV expenditure, the full impact of IV savings efforts goes to the insurance and no longer partly reduces the amount of the federal contribution. The Confederation s disability insurance receipt shares and contributions with a financing effect amounted to 4.7 billion in 2016, representing a year-on-year decline of 2.9%. The Confederation s transfer expenditure for the cantons came in at 21.3 billion in 2016, i.e. a year-on-year increase of 1.7%, or 363 million. The largest transfer item, current contributions, accounted for a share of 46.4% in These are general and ecological direct payments for agriculture, individual premium reductions, AHV and IV supplementary benefits, and promotion contributions in the area of education. Relative to 2015, the Confederation s and concordats ordinary contributions to the cantons grew by 160 million. Much of the increase was due to individual health insurance premium reductions. The federal contribution is paid out to the cantons, which add to the amount as required and transfer it to insurers. Even stronger growth was 32

35 02 The FS Model recorded in the case of compensation for cantons and concordats (+259 mn). This concerns primarily lump-sum compensation for the execution costs incurred by the cantons within the framework of social welfare for asylum seekers, temporarily admitted persons and refugees. The Confederation s direct transfer expenditure for the municipalities is generally low. It fell by 2% year on year to reach 1 billion in This concerns the Confederation s cultural contribution to Bern, which the city uses for cultural institutions and projects. The details of the utilization of the contribution are set out in a service level agreement with the city of Bern. A further component for the difference between the statement of financial performance and the financing statement is the statement of investments, which is part of the financing statement. Investment contributions accounted for half of the ordinary investment expenditure of 8.2 billion in 2016, tangible fixed assets (especially buildings and motorways) 28% and loans a fifth. With a growth rate of 0.4%, investment expenditure grew less strongly than nominal GDP (+0.9%). The additional investments were made mainly in the Transportation and telecommunications task area. Likewise driven by the introduction of the railway infrastructure fund, ordinary investment receipts rose sharply in the Transportation and telecommunications task area. The Confederation invested some 7.4 billion net in In the statement of financial performance, the financial result amounted to -366 million, whereas in the financing statement it showed a slight surplus (293 mn). This was due partly to the fact that financial revenue (1.5 bn) was around 154 million higher than financial receipts because of significant revaluations of administrative assets and partly to the fact that financial expense (1.8 bn) was higher than financial expenditure (1 bn) mainly in the case of interest on financial liabilities and capital procurement and administration. Year on year, financial expense fell by 14.6% and financial revenue by 6.1%. In 2016, the Confederation s expenditure increased by 1.4% to 67.5 billion. Calculating the individual task areas proportions of total expenditure and comparing these with the figures for the previous year shows that the priorities of the 2016 expenditure policy were unchanged on the previous year. The largest sum, around a third of federal expenditure, was spent by the Confederation for Social security, followed by Finances and taxes and Transportation and telecommunications. Social security covers mainly social insurance contributions (old-age and survivors insurance, disability insurance, unemployment insurance), contributions to the cantons for individual premium reductions and supplementary benefits, as well as migration expenditure. Most of this expenditure in this task area is strictly earmarked and cannot really be influenced in the short term. In 2016, the Confederation spent a total of 22.7 billion on Social security, 2.4% more than the previous year. The biggest cost drivers were migration, health insurance and old-age and survivors insurance. This is reflected in the functional groups Social welfare and asylum affairs (+345 mn; +23.7%), Sickness and accident ( mn; +6.6%) and Old age and survivors ( mn; +1.2%). Like the previous year, the Confederation spent 9.9 billion on the second-largest task area, Finances and taxes. This area covers the cantons shares of federal receipts (e.g. direct federal tax, withholding tax, mileage-related heavy vehicle charge), expenditure for funding and asset and debt management, as well as fiscal equalization. Federal expenditure in the area of Transportation and telecommunications posted a year-on-year increase of 2% to 9.2 billion. The level of expenditure earmarking increased in this task area with the introduction of the railway infrastructure fund in 2016 and triggered a rise in public transportation expenditure. The Public transportation functional group was up by 290 million. In percentage terms, air transportation expenditure surged too (+18 mn; +11.1%). Expenditure on road transportation was 122 million lower than in 2015 (-3.6%). Considering the percentage changes in the task areas, the biggest expenditure increases were seen in the case of Health (+4.3%) and Culture, sport and leisure, church (+3.4%). The area of health received an additional sum of around 13 million, which went primarily to preventive healthcare. 33

36 02 The FS Model Figure 3: Expenditure by function Confederation, 2016 Total expenditure: CHF Finances and taxes 14.7% General administration 9.0% Public order and security, defense 8.6% National economy 8.2% Protection of the environment and spatial planning 1.5% Transportation and telecommunications 13.6% Social security 33.6% Education 9.5% Culture, sport and leisure, church 0.8% Health 0.5% "Social security" expenditure posted a year-on-year increase of 532 million (+2.4%), due mainly to higher expenditure for migration (+346 mn), old-age and survivors' insurance (+124 mn) and health insurance (premium reductions; +125 mn). The Confederation s total assets came to billion at the end of 2016, which was 5 billion less than the previous year. Nonadministrative assets fell by a total of 4.5 billion. The decrease was due to the lower level of cash and cash equivalents (-3.5 bn) as well as receivables (-1.1 bn). The redemption of two bonds alone caused the balance on the sight deposit account with the Swiss National Bank to fall by 3.7 billion. The decline in receivables was attributable mainly to withholding tax. Edging down by 439 million (-0.5%), administrative assets were more or less stable. Within administrative assets, the carrying amount of financial interests fell by a total of 755 million. Coming in at 888 million, the biggest decline concerned the financial interest in Swiss Post. The Confederation holds other significant interests in addition to Swiss Post, e.g. in SBB, Swisscom and RU- AG. In contrast, the holdings of tangible fixed assets edged up by 152 million to 57.2 billion in Gross debt fell by 4.7 billion to 97.7 billion year on year. Longterm financial liabilities dropped to 71.4 billion as a result of declines in bonds (-6.1 bn) and Swiss Export Risk Insurance (SERV) fixed-term deposits (-0.1 bn), while current liabilities rose by 1.5 billion to 15.2 billion as a result of various factors (e.g. credit balances of taxable persons and entities from withholding tax and higher holdings in deposit accounts). The Confederation s net assets/equity situation has improved every year since However, the Confederation s negative net assets/equity once again edged up and amounted to billion at the end of

37 02 The FS Model Financial statements Confederation CHF mn Statement of financial performance Revenue Expenses Surplus/deficit Financing statement Receipts Expenditure Overall fiscal balance Statement of financial position Non-administrative assets Administrative assets Liabilities Net assets/equity Total assets Statement of financial performance Confederation CHF Operating expenses Personnel expenses General, administrative and operating expenses Defense expenses Depreciation, administrative assets Net expense for funds and special financing Transfer expenses Operating revenue Tax revenue Royalties and concessions Revenue from exchange transactions Miscellaneous revenue Withdrawals from funds and special financing Transfer revenue Operating result Financial expense Financial revenue Financial result Ordinary result Extraordinary expenses Extraordinary revenue Extraordinary result Surplus/deficit

38 02 The FS Model Financing statement Confederation CHF Operating expenditure Personnel expenditure General, administrative and operating expenditure Defense expenditure Transfer expenditure Operating receipts Tax receipts Royalties and concessions Receipts from exchange transactions Miscellaneous receipts Transfer receipts Operating result Financial expenditure Financial receipts Financial result Investment expenditure Tangible fixed assets Investments on behalf of third parties Investments, intangible fixed assets Loans and financial interests n.e.c. Loans Financial interests and share capital Investment contributions Investment receipts Transfer of tangible fixed assets to non-administrative assets Reimbursements Disposal of intangible fixed assets 16 Repayment of loans and financial interests n.e.c. Loan repayment Transfer of financial interests Repayment of own investment contributions Investment contributions Net investments Ordinary result Extraordinary expenditure Extraordinary expenditure Extraordinary investment expenditure Extraordinary receipts Extraordinary receipts Extraordinary investment receipts Extraordinary result Overall fiscal balance

39 02 The FS Model Statement of financial position Confederation CHF Assets Non-administrative assets Cash and cash equivalents Receivables Short-term financial investments Prepaid expenses and accrued income Inventories and work in progress Financial investments Tangible fixed assets, NAA Receivables from special financing and funds in liabilities Administrative assets Tangible fixed assets, AA Inventories, AA Intangible fixed assets Loans and financial interests n.e.c. Loans Financial interests, share capital Investment contributions Assets due from government units Accumulated additional depreciation and amortization Liabilities and equity Liabilities Current liabilities Short-term financial liabilities Accrued expenses and deferred income Short-term provisions Long-term financial liabilities Liabilities toward government units Long-term provisions Restricted funds Net assets/equity Financing and funds in net assets/equity Global budget area reserves Advance financing Restatement reserve Revaluation reserve, non-administrative assets Other net assets/equity Accumulated surplus/deficit Expenditure by function Confederation CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes

40 02 The FS Model Tax revenue Confederation CHF Tax revenue Direct taxes, natural persons Income tax, natural persons Wealth tax, natural persons Withholding taxes, natural persons Personal taxes Other direct taxes, natural persons Direct taxes, legal entities Profit taxes, legal entities Taxes on capital, legal entities Withholding taxes, legal entities Other direct taxes, legal entities Other direct taxes Withholding tax (Confederation only) Property tax Capital gains tax Capital transfer tax Inheritance and gift tax Casino and slot machine tax Property and expenditure taxes Motor vehicle taxes Boat tax Entertainment tax Dog license Other property and expenditure taxes Consumption taxes (Confederation only) Value added tax Stamp duty Mineral oil tax on fuel Mineral oil surtax on motor fuel Mineral oil tax on combustibles and other mineral oil products Tobacco duty Beer tax Taxation of distilled spirits (SAB) Consumption taxes n.e.c Transportation taxes Automobile duty Motorway tax Heavy vehicle charge Combined traffic taxes Transportation taxes n.e.c. Customs duties (Confederation only) Import duties Other duties Environmental incentive fees Agricultural duties Social security contributions by employers and insured persons Other tax revenue 38

41 02 The FS Model Debt Confederation CHF Gross debt Current liabilities Short-term financial liabilities Without: Derivative financial instruments Long-term financial liabilities Without: Investment contributions posted as liabilities Liabilities toward government units Transfers by nature Confederation to social security funds CHF Total Revenue shares for social security funds Compensation for social security funds Contributions to social security funds Extraordinary transfer expenditure; social security funds Investment contributions, social security funds Extraordinary investment contributions, social security funds Transfers by function Confederation to social security funds CHF Total Social security Sickness and accident Disability Old age and survivors Family and young people Unemployment Subsidized housing Social welfare and asylum affairs R&D social welfare Social welfare n.e.c. 39

42 02 The FS Model Transfers by nature Confederation to cantons CHF Total Revenue shares for cantons and concordats Share in direct federal tax revenue Share in withholding tax revenue Share in military service exemption tax revenue Share in Swiss Alcohol Board revenue Share in revenue from federal fines and duties Share in federal mineral oil tax revenue Share in federal stamp duty revenue Share in EU savings tax revenue Share in mileage-related heavy vehicle charge revenue Share in revenue from other federal receipts Compensation for cantons and concordats Fiscal equalization and cost compensation for cantons Resource equalization Socio-demographic cost compensation Geographical/topographic cost compensation Cohesion fund Contributions to cantons and concordats Extraordinary transfer expenditure; cantons and concordats Investment contributions, cantons and concordats Extraordinary investment contributions, cantons and concordats Transfers by function Confederation to cantons CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes

43 02 The FS Model Transfers by nature Confederation to municipalities CHF Total Revenue shares for municipalities and special purpose entities Compensation for municipalities and special purpose entities Fiscal equalization and cost compensation for municipalities Contributions to municipalities and special purpose entities Extraordinary transfer expenditure; municipalities and special purpose entities Investment contributions, municipalities and special purpose entities Extraordinary investment contributions, municipalities and special purpose entities Transfers by function Confederation to municipalities CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes 41

44 02 The FS Model 23 Cantonal distribution of federal funds The table Cantonal receipts from federal sources shows payment flows from the Confederation to the cantonal budgets, broken down by canton and task area. The table contains the following categories: 4600: share in federal receipts 4610: compensation from the Confederation 4620: fiscal equalization and cost compensation, Confederation 4630: contributions from the Confederation 4860: extraordinary transfer receipts from the Confederation 670: investment contributions, Confederation 6870: extraordinary investment contributions, Confederation The classification of federal funds by category (economic classification) and task area (functional classification) is based on the Harmonized Accounting Model for the Cantons and Municipalities (HAM2). Furthermore, the consolidated total for all of the cantons is disclosed, which also includes the concordats. It must be borne in mind that for the consolidated total, the payer (Confederation) details often do not match the payee (cantons) details exactly. It is imperative for these disparities to be corrected when consolidating public finances. In such cases, the Financial Statistics Section generally adjusts the consolidated total to the payer details. For this reason, and also because of payments to the concordats, the sum for all of the cantons does not necessarily match the consolidated total. In 2016, the cantons receipts from federal sources amounted to 21.3 billion, which corresponds to 24.4% of the cantons total receipts. Most of the Confederation s payments to the cantons were in the form of unrestricted revenue shares (4.2 bn) and within the scope of vertical fiscal equalization and cost compensation (3.2 bn net). Fiscal equalization and cost compensation was comprised of resource equalization (70.9%), socio-demographic and geographical/topographic cost compensation (11.1% each) and the cohesion fund (7%). The Confederation s contribution to vertical resource equalization amounted to 2.3 billion and that to cost compensation 718 million. In 2016, federal funds were paid out to ten cantons under socio-demographic cost compensation and to 17 cantons under geographical/topographic cost compensation. Moreover, the cantons of Bern, Luzern, Obwalden, Glarus, Fribourg, Neuchâtel and Jura recorded cohesion fund receipts. Because the resource potential of the canton of Vaud was above the Swiss average in 2008 and that of the canton of Schaffhausen was above it in 2013, both cantons lost their entitlement to the cohesion fund and the total amount was reduced accordingly relative to the starting amount set out in the federal decree of June 22, 2007 (reduction from around 430 mn to 359 mn). Pursuant to Article 19 paragraph 3 of the FECCA, the cohesion fund will be reduced by 5% annually from 2016 onward. The Confederation finances two thirds of the cohesion fund, and one third comes from the cantons. The canton of Bern received the highest amount of federal funds paid out as fiscal equalization and cost compensation (24.1%) in Per capita based on the permanent resident population, the cantons of Uri (CHF 1,483), Jura (CHF 1,380) and Valais (CHF 1,169) topped the list. The three functional groups under Social security accounted for 25.3% of all receipts from federal sources, with 11.6% of these receipts allocated to Sickness and accident alone. This was in the form of individual health insurance premium reductions for people in economically modest situations. These funds are divided up among the cantons based on their proportion of the resident population (plus cross-border commuters). For this reason, the per-capita receipts (permanent resident population) only fluctuate slightly. With around CHF 309 per inhabitant, the canton of Basel Stadt received the highest contributions, while Zug received the lowest with CHF 294. Disability, old age and survivors accounted for 7% of federal funds. This was in the form of supplementary benefits relating to AHV and IV, as well as a share in the related administrative costs. With CHF 402 per inhabitant, the canton of Basel Stadt received the highest federal contributions, while the canton of Appenzell Innerrhoden received the lowest with CHF 90. Other social security is comprised of the functions Family and young people, Unemployment, Subsidized housing and Social welfare and asylum affairs. In 2016, the Confederation transferred a total of 1.4 billion to the cantons for this functional group. The largest shares of this went to the cantons of Zurich (17.5%), Bern (15.3%) and Vaud (9.8%). When the receipts under this heading are shown on a per-capita basis, the cantons of Neuchâtel (CHF 275), Appenzell Innerrhoden (CHF 251) and Glarus (CHF 228) top the list. The cantons received further federal funds of approximately 2.9 billion and 1.7 billion, respectively, for the functional groups Agriculture and Road transportation in Agriculture receipts are general and ecological direct payments from the Confederation. Direct payments are based on the Federal Act of April 29, 1998 on Agriculture and the binding Direct Payments Ordinance of October 23, The final beneficiaries of direct payments are farmers. However, the federal contributions are paid out via the cantons. The enforcement costs are borne largely by the cantons and the municipalities. In 2016, the canton of Bern received 19.2% of total agriculture contributions. In terms of volume, it topped the list by a significant margin. When federal funds earmarked for Agriculture are broken down on a per-capita basis, the canton of Jura is the leader with CHF 1,451, followed by the cantons of Appenzell Innerrhoden (CHF 1,402) and Graubünden (CHF 1,205). 42

45 02 The FS Model The Road transportation funds are distributed to the cantons based on the requirements of the Infrastructure Fund Act and from restricted revenue shares in federal receipts. The Confederation forwards 10% of the revenue from earmarked mineral oil tax, the mineral oil surtax and motorway tax revenue to the cantons. These contributions are to be used for general road tasks. 98% of this share is distributed to all cantons. The remaining 2% goes to the cantons without motorways, i.e. Appenzell Innerrhoden and Appenzell Ausserrhoden. The contributions per canton are calculated on the basis of road loads and the length of the roads open to motor vehicle traffic excluding motorways. The cantons additionally receive a third of the net revenue from the mileage-related heavy vehicle charge. The Confederation charges funds it allocates to the completion of the planned motorway network and the elimination of bottle necks in the existing motorway network to special financing for Road transportation. It also uses funds for investments in urban transportation and makes contributions to main roads in mountainous areas and outlying regions. With CHF 1,697, the canton of Uri received the highest amount of federal funds per capita for road transportation in 2016, followed by the cantons of Graubünden (CHF 1,049) and Jura (CHF 943). The 206 million received by the canton of Graubünden, for instance, benefited the construction, transportation and forestry department for the extension of motorways, main roads and regional roads. 43

46 02 The FS Model Cantonal receipts from federal sources, 2016 Types: 4600, 4610, 4620, 4630, 4860, 670, 6870 Public security, defense Vocational education Tertiary-level institutions, research Sickness and accident Disability, old age and survivors Other social security Road transportation CHF Zurich Bern Luzern Uri Schwyz Obwalden Nidwalden Glarus Zug Fribourg Solothurn Basel Stadt Basel Landschaft Schaffhausen Appenzell Ausserrhoden Appenzell Innerrhoden St. Gallen Graubünden Aargau Thurgau Ticino Vaud Valais Neuchâtel Geneva Jura Total, consolidated The consolidated total also contains the concordats' receipts. Moreover, the total is adjusted in line with federal expenditure, which is why it does not necessarily correspond to the sum of the receipts from federal sources of all cantons. 44

47 02 The FS Model Cantonal receipts from federal sources, 2016 Continued CHF Protection of environment (excl. spatial planning) Agriculture Fiscal equalization & cost compensation Revenue shares in federal receipts, unrestricted Other Total receipts from federal sources Total cantonal receipts Zurich Bern Luzern Uri Schwyz Obwalden Nidwalden Glarus Zug Fribourg Solothurn Basel Stadt Basel Landschaft Schaffhausen Appenzell Ausserrhoden Appenzell Innerrhoden St. Gallen Graubünden Aargau Thurgau Ticino Vaud Valais Neuchâtel Geneva Jura Total, consolidated The consolidated total also contains the concordats' receipts. Moreover, the total is adjusted in line with federal expenditure, which is why it does not necessarily correspond to the sum of the receipts from federal sources of all cantons. 45

48 02 The FS Model Cantonal receipts from federal sources, 2016, per capita Types: 4600, 4610, 4620, 4630, 4860, 670, 6870 Public security, defense Vocational education Tertiary-level institutions, research Sickness and accident Disability, old age and survivors Other social security Road transportation CHF Zurich Bern Luzern Uri Schwyz Obwalden Nidwalden Glarus Zug Fribourg Solothurn Basel Stadt Basel Landschaft Schaffhausen Appenzell Ausserrhoden Appenzell Innerrhoden St. Gallen Graubünden Aargau Thurgau Ticino Vaud Valais Neuchâtel Geneva Jura Total, consolidated

49 02 The FS Model Cantonal receipts from federal sources, 2016, per capita Continued CHF Protection of environment (excl. spatial planning) Agriculture Fiscal equalization & cost compensation Revenue shares in federal receipts, unrestricted Other Total receipts from federal sources Total cantonal receipts in % of the total cantonal receipts Zurich % Bern % Luzern % Uri % Schwyz % Obwalden % Nidwalden % Glarus % Zug % Fribourg % Solothurn % Basel Stadt % Basel Landschaft % Schaffhausen % Appenzell Ausserrhoden % Appenzell Innerrhoden % St. Gallen % Graubünden % Aargau % Thurgau % Ticino % Vaud % Valais % Neuchâtel % Geneva % Jura % Total, consolidated % 47

50 02 The FS Model 24 Cantons In 2016, the cantons recorded an increase in the ordinary fiscal balance for the second time in a row. The ordinary financing surplus amounted to 1.1 billion. Due to federal law requirements with respect to occupational old-age, survivors and invalidity pension provision (OPA), the cantons accounts for 2016 were again affected by restructuring contributions to cantonal pension funds. Coming in at 695 million, these were nonetheless significantly lower than previous years; they amounted to 3.3 billion in In the consolidated statement of financial performance for 2016, operating expenses grew by 2.4% and operating revenue by 1.4%. The 2 billion rise in operating expenses to 84 billion was driven primarily by increases in ordinary transfer expenses (+1.3 bn). The higher operating revenue of approximately 1.2 billion was due to tax revenue, which rose by a total of 2.8% to 45.6 billion in Year on year, the biggest percentage increases were seen in the cantons of Schwyz (+21.4%), Schaffhausen (+14.5%) and Zug (+6.6%). The tax revenue surge in the canton of Schwyz, for example, was due to higher tax revenue in the case of natural persons and a one-time factor in the case of legal entities. The increase in direct taxes, natural persons resulted from the effects of the partial revision of tax law as of January 1, 2015 in conjunction with tax multiplier increases and a rise in the tax base. The cantons direct taxes of natural persons rose by 1.8% overall. Approximately 45% of that increase was due to income tax, natural persons and 35% was attributable to wealth tax, natural persons. Personal taxes, withholding taxes, natural persons, and other direct taxes, natural persons accounted for the remainder. The development of withholding tax and its breakdown by canton is also a reflection of the 2016 statistics for cross-border commuters, with around four fifths of all cross-border commuters working in the Lake Geneva region, North-Western Switzerland or Ticino. The extraordinary result in the statement of financial performance showed a deficit of 802 million. In contrast to the government accounts of the cantons, the financial statistics recognize pension fund restructuring amounts as extraordinary personnel expenses. This ensures that the restructuring of pension funds is treated in the same way in all cantons. Total extraordinary expenses amounted to 1.1 billion in The extraordinary revenue of 275 million consisted primarily of extraordinary financial revenue and withdrawals from net assets/equity. In the canton of Graubünden, for example, financial investments under nonadministrative assets had a higher value. The consolidated financing statement for 2016 showed expenditure of 86.8 billion, of which 0.8% was extraordinary in nature. The cantons highest expenditure items in 2016 were Education (28.2%) and Social security (21.7%). Since 1990, the cantons have consistently increased their education expenditure, with the exception of 1998 and 2009, when it fell slightly. It amounted to 24.4 billion in 2016, with 32.4% spent on obligatory schooling and 28.5% on tertiary-level institutions. Expenditure was up by 5.6% in the area of Social security. The additional expenditure of 992 million concerned essentially the Social welfare and asylum affairs (+466 mn; +11.6%), Sickness and accident (+283 mn; +6.6%) and Old age and survivors (+215 mn; +7.9%) functional groups. Social welfare and asylum affairs expenditure has been rising continually since 1990 and exceeded the 4 billion mark for the first time in The nominal increase for social welfare and asylum affairs seen in 2016 occurred primarily in the cantons of Zurich, Bern and Geneva. In percentage terms, however, the cantons of Schwyz, Appenzell Ausserrhoden and Solothurn had the strongest growth rates. The higher number of federal allocations to asylum seekers due to conflicts in the Middle East increased the financial volume in these cantons. In terms of task area, the biggest percentage drop in total cantonal expenditure was seen in the area of General administration (-34.2%) in Excluding extraordinary expenditure (primarily funding of pension funds), a very different picture emerges, as ordinary expenditure in the General administration area remained at 4.4 billion, while the National economy area experienced the sharpest decline (-10% vs. 2015). Aside from Social security, the Protection of the environment and spatial planning (+3.7%), Health (+2.3%) and Culture, sport and leisure, church (+2.1%) task areas also recorded higher total expenditure relative to the previous year. The rise in the area of Protection of the environment and spatial planning was attributable primarily to the cantons of Basel Stadt (+23 mn), Ticino (+14 mn) and Zurich (+13 mn). The canton of Aargau, in contrast, spent 41 million less on anti-pollution than in This concerned lower transfer expenditure in the environmental remediation of polluted sites performance group (particularly the Kölliken hazardous waste landfill). 48

51 02 The FS Model Transfer expenditure between the cantons occurs primarily in the areas of Education and Finances and taxes. Relative to 2015, transfer expenditure was up by approximately 118 million, or 2.6%. In the area of education (+3.5%), this was largely due to the high contributions to the concordats, i.e. transfers to universities and universities of applied sciences. For instance, transfers to Tertiary-level institutions rose by 3.9% to 2.4 billion. Finances and taxes accounted for 35.8% of intercantonal transfers in 2016 (previous year: 36.4%). This area includes fiscal equalization payments, which amounted to around 1.7 billion in Of this, the financially strong cantons transferred some 1.6 billion to the financially weak cantons via horizontal resource equalization. The cantons of Zurich (+32 mn), Schwyz (+14 mn), Nidwalden and Zug (around +10 mn each) paid more in terms of resource equalization than in In contrast, the cantons of Basel Landschaft (-0.7 mn), Basel Stadt (-0.8 mn), Schaffhausen (-2 mn), Geneva (-10 mn) and Vaud (-32 mn) fared better in The cantons of Zurich, Zug and Geneva accounted for almost three quarters of resource equalization payments in The table Fiscal equalization and cost compensation, cantons gives a summary of the cantons equalization amounts spent and received. Once again, a smaller amount was posted for Fiscal equalization n.e.c. in 2016 than in previous years. This development was caused by the changeover to the HAM2, with the result that the recipient (or at least the sub-sector) of financial equalization payments is now clearly visible from the cantonal accounts. The cantons transfer receipts under fiscal equalization and cost compensation amounted to around 3.6 billion, down 0.7% on Of this, the Confederation paid out some 3.2 billion as vertical resource equalization, socio-demographic and geographical/topographic cost compensation and cohesion fund resources. The receipts under fiscal equalization and cost compensation from the municipalities to the cantons are minor in comparison. They were down by 29 million to around 310 million. The details of the transfers from the cantons to the municipalities are shown in two further tables. The cantons spent approximately 5.9 billion in 2016, primarily on Finances and taxes (39%) and Social security (31%). The 6.1% increase in Social security was due essentially to higher social welfare and asylum affairs expenditure. In the area of Finances and taxes, transfers to fiscal equalization and cost compensation payments rose by 1.3%, while other revenue shares without appropriation fell by 1.6%. In the 2016 statement of investments, ordinary investment expenditure was down by 4.6% and the corresponding receipts were up by 1%. The improvement in cantonal investment receipts (+24 mn) was seen mainly in the case of loan repayments (+155 mn), combined with lower investment contributions (-133 mn). The higher loan repayments occurred mainly in the canton of Zurich. The reduction in investment contributions occurred primarily in the cantons of Graubünden (-106 mn) and Bern (-59 mn). The significantly lower investment expenditure (-324 mn) was due to sub-items moving in opposite directions, with financial interests and share capital as well as tangible fixed assets falling while investment contributions and loans grew. The overall results of the individual cantons are presented in the table Statement of financial performance and financing statement, cantons, Overall, 14 cantons had a negative overall fiscal balance and two had a neutral one (+/- 2 mn). Ten cantons had a positive overall fiscal balance, and the canton of Vaud posted the highest gain. 49

52 02 The FS Model Figure 4: Expenditure by function cantons, 2016 Total expenditure: CHF Finances and taxes 4.5% National economy 5.2% Protection of the environment and spatial planning 1.7% Transportation and telecommunications 7.1% General administration 5.9% Public order and security, defense 9.1% Social security 21.7% Health 14.6% Education 28.2% Culture, sport and leisure, church 2.1% With a rise of 5.6%, or 992 million, "Social security" experienced the biggest year-on-year increase in cantonal expenditure, due primarily to migration (+411 mn), health insurance premium reductions (+283 mn) and AHV supplementary benefits (+206 mn). Compared with 2015, the cantons statement of financial position expanded by 2.6 billion (+2.3%), thus continuing the long-term trend toward statement of financial position expansion. The principal reasons behind the latest expansion of the statement of financial position were reclassifications and restatements made in relation to conversions to the Harmonized Accounting Model (HAM2). For the 2016 financial statements, the canton of Schwyz switched its accounting standards and thus also adopted the more detailed chart of accounts. The cantons liabilities rose by 2.4 billion due to debt-related components. Gross debt climbed by 2.3% to reach 64.3 billion at the end of The increase was due to opposing movements: while current liabilities (+0.2 bn) and short-term financial liabilities (+1.6 bn) increased, long-term financial liabilities decreased by 0.3 billion. The cantons of Geneva, Zurich, Bern, Basel Stadt and Basel Landschaft together accounted for 61.6% of total debt (2015: 61.9%). The gross debt per capita of all of the cantons came to CHF 7,640, which was CHF 88, or 1.2%, higher than the previous year s level. With CHF 31,503 per capita, the canton of Geneva had the highest debt level in 2016, followed by the cantons of Basel Stadt (CHF 26,453) and Basel Landschaft (CHF 15,326). However, it has to be taken into account that the debt of the canton of Basel Stadt also includes that of the city of Basel. While debt grew in the cantons of Basel Stadt (+461 mn; CHF +2,228 per capita) and Basel Landschaft (+178 mn; CHF +498 per capita), the canton of Geneva reduced its debt relative to 2015 (-248 mn and CHF -824 per capita, respectively). At the end of 2016, the cantons of Obwalden (CHF 1,040 mn), Fribourg (CHF 2,811 mn) and Uri (CHF 3,012 mn) had the lowest debt per capita. 1 1 The gross debt per capita can be found online at > Topics > Financial statistics > Reporting > FS Model: Cantons > Cantons in comparison 50

53 02 The FS Model Financial statements cantons CHF mn Statement of financial performance Revenue Expenses Surplus/deficit Financing statement Receipts Expenditure Overall fiscal balance Statement of financial position Non-administrative assets Administrative assets Liabilities Net assets/equity Total assets Statement of financial performance cantons CHF Operating expenses Personnel expenses General, administrative and operating expenses Defense expenses Depreciation, administrative assets Net expense for funds and special financing Transfer expenses Operating revenue Tax revenue Royalties and concessions Revenue from exchange transactions Miscellaneous revenue Withdrawals from funds and special financing Transfer revenue Operating result Financial expense Financial revenue Financial result Ordinary result Extraordinary expenses Extraordinary revenue Extraordinary result Surplus/deficit

54 02 The FS Model Financing statement cantons CHF Operating expenditure Personnel expenditure General, administrative and operating expenditure Defense expenditure Transfer expenditure Operating receipts Tax receipts Royalties and concessions Receipts from exchange transactions Miscellaneous receipts Transfer receipts Operating result Financial expenditure Financial receipts Financial result Investment expenditure Tangible fixed assets Investments on behalf of third parties Investments, intangible fixed assets Loans and financial interests n.e.c Loans Financial interests and share capital Investment contributions Investment receipts Transfer of tangible fixed assets to non-administrative assets Reimbursements Disposal of intangible fixed assets Repayment of loans and financial interests n.e.c Loan repayment Transfer of financial interests Repayment of own investment contributions Investment contributions Net investments Ordinary result Extraordinary expenditure Extraordinary expenditure Extraordinary investment expenditure Extraordinary receipts Extraordinary receipts Extraordinary investment receipts Extraordinary result Overall fiscal balance

55 02 The FS Model Statement of financial position cantons CHF Assets Non-administrative assets Cash and cash equivalents Receivables Short-term financial investments Prepaid expenses and accrued income Inventories and work in progress Financial investments Tangible fixed assets, NAA Receivables from special financing and funds in liabilities Administrative assets Tangible fixed assets, AA Inventories, AA Intangible fixed assets Loans and financial interests n.e.c Loans Financial interests, share capital Investment contributions Assets due from government units Accumulated additional depreciation and amortization Liabilities and equity Liabilities Current liabilities Short-term financial liabilities Accrued expenses and deferred income Short-term provisions Long-term financial liabilities Liabilities toward government units Long-term provisions Restricted funds Net assets/equity Financing and funds in net assets/equity Global budget area reserves Advance financing Restatement reserve Revaluation reserve, non-administrative assets Other net assets/equity Accumulated surplus/deficit

56 02 The FS Model Expenditure by function cantons CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes Tax revenue cantons CHF Tax revenue Direct taxes, natural persons Income tax, natural persons Wealth tax, natural persons Withholding taxes, natural persons Personal taxes Other direct taxes, natural persons Direct taxes, legal entities Profit taxes, legal entities Taxes on capital, legal entities Withholding taxes, legal entities Other direct taxes, legal entities Other direct taxes Withholding tax (Confederation only) Property tax Capital gains tax Capital transfer tax Inheritance and gift tax Casino and slot machine tax Property and expenditure taxes Motor vehicle taxes Boat tax Entertainment tax Dog license Other property and expenditure taxes

57 02 The FS Model Debt cantons CHF Gross debt Current liabilities Short-term financial liabilities Without: Derivative financial instruments Long-term financial liabilities Without: Investment contributions posted as liabilities Liabilities toward government units Transfers by nature between cantons CHF Total Revenue shares for cantons and concordats Compensation for cantons and concordats Fiscal equalization and cost compensation for cantons Resource equalization Socio-demographic cost compensation Geographical/topographic cost compensation Cohesion fund Vertical fiscal equalization between municipalities and cantons Vertical cost compensation between municipalities and cantons Forwarding of resource equalization and cohesion fund from donor cantons Contributions to cantons and concordats Extraordinary transfer expenditure; cantons and concordats Investment contributions, cantons and concordats Extraordinary investment contributions, cantons and concordats Transfers by function between cantons CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes

58 02 The FS Model Fiscal equalization and cost compensation cantons CHF Transfer expenditure Fiscal equalization and cost compensation for cantons Fiscal equalization and cost compensation for municipalities Fiscal equalization n.e.c Transfer receipts Fiscal equalization and cost compensation, Confederation Fiscal equalization and cost compensation from cantons Fiscal equalization and cost compensation from municipalities Fiscal equalization n.e.c Transfers by nature cantons to municipalities CHF Total Revenue shares for municipalities and special purpose entities Municipalities' share in cantonal taxes Municipalities' share in royalties and concessions Municipalities' share in cantonal fees Municipalities' share in other cantonal receipts Compensation for municipalities and special purpose entities Fiscal equalization and cost compensation for municipalities Forwarding of a share in resource equalization to municipalities Forwarding of a share in socio-demographic equalization to municipalities Forwarding of a share in geographical/topographic equalization to municipalities Forwarding of a share in cohesion fund to municipalities Intra-cantonal vertical fiscal equalization Intra-cantonal vertical cost compensation Horizontal fiscal equalization between municipalities and cantons Horizontal cost compensation between municipalities and cantons Fiscal equalization n.e.c Contributions to municipalities and special purpose entities Extraordinary transfer expenditure; municipalities and special purpose entities Investment contributions, municipalities and special purpose entities Extraordinary investment contributions, municipalities and special purpose entities 56

59 02 The FS Model Transfers by function cantons to municipalities CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes Statement of financial performance and financing statement, cantons 2016 CHF mn Revenue Expenses Balance Receipts Expenditure Balance Total Zurich Bern Luzern Uri Schwyz Obwalden Nidwalden Glarus Zug Fribourg Solothurn Basel Stadt Basel Landschaft Schaffhausen Appenzell Ausserrhoden Appenzell Innerrhoden St. Gallen Graubünden Aargau Thurgau Ticino Vaud Valais Neuchâtel Geneva Jura Concordats The total has been adjusted for transfers between government units. 57

60 02 The FS Model Statement of financial position, cantons 2016 CHF mn Nonadministrative assets Administrative assets Liabilities Net assets/equity Total assets Gross debt Total Zurich Bern Luzern Uri Schwyz Obwalden Nidwalden Glarus Zug Fribourg Solothurn Basel Stadt Basel Landschaft Schaffhausen Appenzell Ausserrhoden Appenzell Innerrhoden St. Gallen Graubünden Aargau Thurgau Ticino Vaud Valais Neuchâtel Geneva Jura Concordats

61 02 The FS Model 25 Municipalities The municipalities financial situation improved slightly in 2016 relative to the previous year. Although the financing statement closed with a deficit for the fifth time in succession in 2016, the deficit was lower than in 2015 and gross debt remained at 51.4 billion. The consolidated statement of financial performance of the municipalities sub-sector closed with a surplus of 813 million in While expenses rose by 1.5%, revenue progressed by 3% to 47.7 billion. The revenue growth was driven mainly by tax revenue and financial revenue. Tax revenue accounted for 59.7% of revenue in 2016 and was up by 3.2% to 28.4 billion. The 883 million increase occurred largely in the municipalities in the cantons of Zurich (+526 mn), Solothurn (+76 mn) and Ticino (+72 mn). In the city of Zurich alone, exceptionally high supplementary tax payments from previous years for both natural persons and legal entities meant that the previous year s tax revenue was exceeded by 342 million. In contrast, the biggest tax revenue losses were suffered by canton of Geneva municipalities (-73 mn). Much of the decline was seen in the city of Geneva, whose tax revenue fell by 45 million mainly as a result of lower tax receipts of natural persons. In the 2016 statement of financial performance, the municipalities operating result amounted to a total of -1.2 billion. Compared with the previous year, operating revenue increased by 1.6%, while operating expenses remained stable (+0.2%). Personnel expenses, which accounted for almost a third of operating expenses in 2016, grew by 1.5%. In the observation period from 1990 onward, transfer expenses exceeded personnel expenses for the first time. Relative to the previous year, they were up by 2.6%. Transfer expenses were considerably higher particularly in the municipalities in the cantons of Zurich and Basel Landschaft. The rise in Zurich municipalities was due to compensation for cantons and concordats. With a year-on-year decline of 11.5%, net expense for funds and special financing posted the sharpest reduction in operating expenses in percentage terms. Around three quarters of the plunge in net expense for funds and special financing occurred in canton of Vaud (-35 mn), Bern (-33 mn) and Geneva (-31 mn) municipalities. The extraordinary result in the 2016 statement of financial performance showed a deficit of -522 million, comprised of extraordinary revenue of 360 million and extraordinary expenses of 882 million. Primarily canton of Bern and Zurich municipalities posted extraordinary transactions. In the financial statements of canton of Bern municipalities, these were essentially deposits in and withdrawals from net assets/equity. Zurich municipalities additionally incurred extraordinary expenses within the scope of pension fund restructuring as well. The consolidated financing statement for 2016 showed a deficit for the fifth time in succession. The deficit amounted to 344 million. In the 2016 ordinary budget, the municipalities invested 6.1 billion in net terms, i.e. 179 million more than the previous year. While ordinary investment expenditure edged down by 49 million, ordinary investment receipts fell by 228 million. The reduction in investment expenditure was due primarily to fewer investments in tangible fixed assets (-184 mn) and higher investment contributions (+136 mn). In 2016, particularly the municipalities in the cantons of Bern and Zurich invested less in tangible fixed assets. Meanwhile, lower investment receipts were generated mainly in municipalities in the cantons of Luzern and Vaud. The municipalities expenditure amounted to 47.7 billion in % of this expenditure was attributable to Education, which saw a rise of 2.2% to 12.8 billion. The increase was due predominantly to additional expenditure for obligatory schooling in canton of Vaud (+68 mn) and Fribourg (+56 mn) municipalities. The municipalities in these two cantons posted robust growth also in percentage terms. The Social security task area accounted for some 19.1% of total municipal expenditure and posted a year-on-year increase of 2% to 9.1 billion. The increase of 182 million was due primarily to additional expenditure for the functional groups Old age and survivors (+98 mn) and Social welfare and asylum affairs (+93 mn). The additional expenditure for Social welfare and asylum affairs was driven particularly by municipalities in the cantons of Zurich (71 mn), St. Gallen (+18 mn) and Aargau (+17 mn). In contrast, the municipalities in the cantons of Obwalden (+18.3%), Schwyz (+16.8%) and Schaffhausen (+13.6%) had the highest percentage increases. If the task areas are compared, Culture, sport and leisure, church recorded the strongest growth (+4.5%). In contrast, the biggest drop in expenditure was seen in the areas of National economy (-4.4%) and Finances and taxes (-4.9%). The reduction of 97 million in Finances and taxes was attributable to Geneva and Schwyz municipalities. The National economy task area posted a year-on-year decline of 71 million in All functional groups were affected by this reduction, with only Fuel and energy posting an increase (+1.7%). 59

62 02 The FS Model The table Statement of financial performance and financing statement, cities and cantonal capitals, 2016 shows that 30 of the 55 cities and cantonal capitals posted a deficit in their financing statement. Eleven cities and cantonal capitals posted a more or less balanced financial result (+/- 2 mn), while 14 posted a surplus. An item particularly worthy of mention at municipal level is that the city of Basel has no budget of its own, which is why its accounts are disclosed as part of the canton s accounts. Further municipalities in the cantons of Zurich, Bern, Solothurn, St. Gallen, Graubünden and Neuchâtel introduced the new Harmonized Accounting Model (HAM2) in fiscal Figure 5: Expenditure by function, municipalities, 2016 Total expenditure: CHF Protection of the environment and spatial planning 9.1% Finances and taxes 4.0% National economy 3.2% General administration 10.6% Public order and security, defense 6.4% Transportation and telecommunications 9.4% Education 26.9% Social security 19.1% Health 4.3% Culture, sport and leisure, church 7.1% Relative to 2008, "Obligatory schooling" expenditure was up by around a quarter. In 2016, that expenditure accounted for some 90% of municipal education expenditure. The municipalities total assets stood at billion at the end of 2016, which represents a year-on-year increase of 4.5 billion. The rise concerned both non-administrative assets (+2.1 bn; +4.4%) and administrative assets (+2.4 bn; +4.4%). Some of the increase was caused by revaluations within the framework of HAM2 conversions. The restatements simultaneously led to an improvement in net assets/equity. The municipalities net assets/ equity rose by a total of 17.7% to 40.2 billion in The cities and cantonal capitals alone, whose net assets/equity surged by 21.4%, accounted for 23.7%. The municipalities liabilities fell by 2.4% because of non-debtrelated components. Gross debt, which accounted for 78.3% of liabilities in 2016, fell by 0.1%, or around 40 million. This decline concerned primarily long-term financial liabilities in canton of Bern and Zurich municipalities. The debt of the cities and cantonal capitals fell by a total of around 697 million to 25.4 billion in The cities of Zurich (7.6 bn), Bern (2.7 bn), Lausanne (2.6 bn), Winterthur (1.7 bn) and Geneva (1.6 bn) accounted for 64% of this debt. With respect to the number of inhabitants, the picture for the cities and cantonal capitals was as follows: the highest level of gross debt per capita was posted in the city of Bern (CHF 19,987) and the lowest was in the city of Appenzell (CHF 72). The second-highest gross debt per capita was recorded in the city of Lausanne (CHF 19,036), followed by the cities of Zurich (CHF 18,958), Lugano (CHF 16,331) and Winterthur (CHF 15,812). In 2016, the gross debt per capita for all municipalities was CHF 6,103. Relative to 2015, it was down by 1.2%, or CHF The gross debt per capita can be found online at > Topics > Financial statistics > Reporting > FS Model: Municipalities > Municipalities in comparison 60

63 02 The FS Model Financial statements municipalities CHF mn Statement of financial performance Revenue Expenses Surplus/deficit Financing statement Receipts Expenditure Overall fiscal balance Statement of financial position Non-administrative assets Administrative assets Liabilities Net assets/equity Total assets Statement of financial performance municipalities CHF Operating expenses Personnel expenses General, administrative and operating expenses Defense expenses Depreciation, administrative assets Net expense for funds and special financing Transfer expenses Operating revenue Tax revenue Royalties and concessions Revenue from exchange transactions Miscellaneous revenue Withdrawals from funds and special financing Transfer revenue Operating result Financial expense Financial revenue Financial result Ordinary result Extraordinary expenses Extraordinary revenue Extraordinary result Surplus/deficit

64 02 The FS Model Financing statement municipalities CHF Operating expenditure Personnel expenditure General, administrative and operating expenditure Defense expenditure Transfer expenditure Operating receipts Tax receipts Royalties and concessions Receipts from exchange transactions Miscellaneous receipts Transfer receipts Operating result Financial expenditure Financial receipts Financial result Investment expenditure Tangible fixed assets Investments on behalf of third parties Investments, intangible fixed assets Loans and financial interests n.e.c Loans Financial interests and share capital Investment contributions Investment receipts Transfer of tangible fixed assets to non-administrative assets Reimbursements Disposal of intangible fixed assets Repayment of loans and financial interests n.e.c Loan repayment Transfer of financial interests Repayment of own investment contributions Investment contributions Net investments Ordinary result Extraordinary expenditure Extraordinary expenditure Extraordinary investment expenditure Extraordinary receipts Extraordinary receipts Extraordinary investment receipts Extraordinary result Overall fiscal balance

65 02 The FS Model Statement of financial position municipalities CHF Assets Non-administrative assets Cash and cash equivalents Receivables Short-term financial investments Prepaid expenses and accrued income Inventories and work in progress Financial investments Tangible fixed assets, NAA Receivables from special financing and funds in liabilities Administrative assets Tangible fixed assets, AA Inventories, AA Intangible fixed assets Loans and financial interests n.e.c Loans Financial interests, share capital Investment contributions Assets due from government units Accumulated additional depreciation and amortization Liabilities and equity Liabilities Current liabilities Short-term financial liabilities Accrued expenses and deferred income Short-term provisions Long-term financial liabilities Liabilities toward government units Long-term provisions Restricted funds Net assets/equity Financing and funds in net assets/equity Global budget area reserves Advance financing Restatement reserve Revaluation reserve, non-administrative assets Other net assets/equity Accumulated surplus/deficit

66 02 The FS Model Expenditure by function municipalities CHF Total General administration Public order and security, defense Education Culture, sport and leisure, church Health Social security Transportation and telecommunications Protection of the environment and spatial planning National economy Finances and taxes Tax revenue municipalities CHF Tax revenue Direct taxes, natural persons Income tax, natural persons Wealth tax, natural persons Withholding taxes, natural persons Personal taxes Other direct taxes, natural persons Direct taxes, legal entities Profit taxes, legal entities Taxes on capital, legal entities Withholding taxes, legal entities Other direct taxes, legal entities Other direct taxes Withholding tax (Confederation only) Property tax Capital gains tax Capital transfer tax Inheritance and gift tax Casino and slot machine tax Property and expenditure taxes Motor vehicle taxes Boat tax Entertainment tax Dog license Other property and expenditure taxes Debt municipalities CHF Gross debt Current liabilities Short-term financial liabilities Without: Derivative financial instruments Long-term financial liabilities Without: Investment contributions posted as liabilities Liabilities toward government units 64

67 02 The FS Model Statement of financial performance and financing statement, cities and cantonal capitals 2016 CHF mn Revenue Expenses Balance Receipts Expenditure Balance Total Wetzikon Horgen Wädenswil Dübendorf Uster Winterthur Dietikon Zurich Bern Köniz Biel Thun Emmen Kriens Luzern Altdorf Schwyz Sarnen Stans Glarus Baar Zug Bulle Fribourg Solothurn Riehen Allschwil Liestal Schaffhausen Herisau Appenzell St. Gallen Rapperswil-Jona Wil Chur Aarau Wettingen Frauenfeld Kreuzlingen Bellinzona Lugano Lausanne Renens Nyon Montreux Yverdon-les-Bains Sion La Chaux-de-Fonds Neuchâtel Carouge Geneva Lancy Meyrin Vernier Delémont The city of Basel is disclosed as part of the canton s accounts 65

68 02 The FS Model Statement of financial position, cities and cantonal capitals 2016 CHF mn The city of Basel is disclosed as part of the canton s accounts 66 Nonadministrative assets Administrative assets Liabilities Net assets/equity Total assets Gross debt Total Wetzikon Horgen Wädenswil Dübendorf Uster Winterthur Dietikon Zurich Bern Köniz Biel Thun Emmen Kriens Luzern Altdorf Schwyz Sarnen Stans Glarus Baar Zug Bulle Fribourg Solothurn Riehen Allschwil Liestal Schaffhausen Herisau Appenzell St. Gallen Rapperswil-Jona Wil Chur Aarau Wettingen Frauenfeld Kreuzlingen Bellinzona Lugano Lausanne Renens Nyon Montreux Yverdon-les-Bains Sion La Chaux-de-Fonds Neuchâtel Carouge Geneva Lancy Meyrin Vernier Delémont

69 02 The FS Model 26 Social security funds Further progress was made on securing the finances of Swiss social security institutions and nursing them back to health. The social security funds sub-sector has posted a reduction in debt and surpluses in the consolidated financing statement since It had a surplus of 710 million in The social security funds recorded a surplus of 1.4 billion in their consolidated statement of financial performance for This resulted mainly from the financial result (1.3 bn). As in the previous two years, there were no extraordinary transactions. The operating result fell by 940 million to 87 million year on year. The consolidated financing statement for 2016 showed receipts of 62.7 billion and expenditure of 62 billion. Receipts posted a year-on-year increase of 389 million (+0.6%). Expenditure, in contrast, rose much more sharply (1.4 bn; +2.2%). Expenditure was divided between Social security and Finances and taxes. Expenditure in the latter area was attributable solely to the Taxes and Asset and debt management functional groups. In 2016, 69.4% of total expenditure was incurred in the Old age and survivors functional group, where expenditure grew by 1.8% to 43 billion because of the continual rise in the number of pension recipients. According to AHV statistics, the holdings of old-age pensions (main and supplementary) rose by 1.9% in 2016 and those of survivors pensions by 2.3%. Moreover, with a slightly higher average rate of unemployment of 3.3%, expenditure to combat unemployment increased by 8.5%. Expenditure for Family and young people declined for the seventh year in succession, and ended 2016 down by 2.1%. This area consists of agriculture family allowances (FL) and maternity insurance expenditure in Geneva. A look at the individual social security funds shows the following picture: Pensions and allowances for the helpless accounted for approximately 99% of the total old-age and survivors insurance (AHV) expenditure of 43.2 billion. Pensions and allowances for the helpless are recognized as contributions to households in the financial statistics. The trend of this expenditure is determined by demographics, the adjustment of pensions in line with wage and price trends and any system changes due to legislative decisions. Contributions to households increased by 1.8% year on year, while social security contributions by employers and insured persons rose by 1.4%. Coming in at 30.9 billion, the latter accounted for the largest proportion of total receipts and 71.7% of operating expenditure in The Confederation is the second most important source of financing. The federal contribution rose by 1.9% to around 8.3 billion. The Confederation finances some AHV expenditure with the old-age, survivors and disability insurance restricted fund, which is financed by tobacco and alcohol duty revenue as well as the federal share of the percentage of VAT for AHV. Total AHV receipts grew by 0.9% year on year and amounted to 43.1 billion in Financial receipts accounted for a small share of 1.7%. Both the disability insurance (IV) and AHV systems are based on the pay-as-you-go approach. This means that all of a given year s expenditure generally has to be covered by the receipts of the same year. Disability insurance has produced a surplus in the financing statement since With receipts of 10.2 billion and expenditure of 9.5 billion, it had an overall fiscal balance of 753 million in 2016 thanks to the fixed-term supplementary financing (2011 to 2017). Excluding the some 1.1 billion in supplementary financing (special federal contribution to cover interest on IV debt vis-à-vis the AHV compensation fund and the VAT supplement), it would have posted a loss. The operating result improved continually from 2005 to 2014, due to the generally increased awareness of all players in the IV area and the new tools associated with the most recent revisions of disability insurance. The operating surplus amounted to 823 million in On the receipts side, the contributions by employers and insured persons rose by 1.4% to around 5.2 billion and thereby covered 55% of operating expenditure. Amounting to 3.6 billion, the federal contribution was the second-largest receipt component. The Confederation s contribution to disability insurance has been linked to the increase in value added tax revenue since January 2014, whereby the development of wages and prices is additionally taken into account with a discount factor. By linking the federal contribution to value added tax instead of IV expenditure, the full impact of IV savings efforts goes to the insurance and no longer partly reduces the amount of the federal contribution. Within the scope of the supplementary financing, around 30 million went from the Confederation to disability insurance for interest payments in 2016, versus 160 million the previous year. For the duration of the IV supplementary financing period, the interest on IV debt toward the AHV compensation fund is assumed in full by the Confederation. In addition, the fixed-term VAT supplement amounted to 1.1 billion in 2016 (+0.1% relative to the previous year). This is comprised of the corresponding share of total VAT receipts according to the no-offsetting principle less the proportional amount of losses on receivables. Benefits for households were largely comprised of cash benefits in the form of pensions, allowances for the helpless, daily benefits, individual reintegration measures and collective benefits. Benefits for private non-profit organizations fell by 6.5% year on year to 156 million. These are contributions to private disability assistance charitable organizations for advising people with disabilities and their relatives, for providing courses, for benefits to support and promote the integration of people with disabilities, as well as for providing assisted living solutions. 67

70 02 The FS Model Unemployment insurance posted a surplus in its financing statement for the sixth year in succession. In 2016, the receipt surplus was around 159 million. Receipts were up by 1.6% and expenditure grew by 8.4%. Contributions to households are the largest expenditure item for unemployment insurance, and in 2016 the payments made to households and private corporations totaled around 6.4 billion. They can be broken down into payments in the event of unemployment (around 5.7 bn), short-time working (143 mn), bad weather stoppages (24 mn) and the employer s inability to pay (36 mn). In addition, 636 million was spent on labor market measures. Contributions by employers and insured persons are the main source of receipts for unemployment insurance. They are generally paid on a 50/50 basis, and, like the previous year, accounted for 90.9% of total ALV receipts in Public-sector contributions (from the Confederation and the cantons) are the second-largest receipt item. They depend on the amount of the contributory wage bill as well as the contribution rate. Ordinary ALV transfer receipts came in at 676 million in Agriculture family allowances (FL) are paid out to farmers and agricultural workers based on the Federal Act of June 20, 1952 on Family Allowances for Agricultural Workers (AFAA; SR 836.1). The allowance rates according to the AFAA correspond to the minimum amounts set out in the Family Allowances Act (FAA; SR 836.2). To finance the family allowances for agricultural workers, agricultural employers pay a contribution of 2% of the cash salaries and payments in kind paid on their farms, insofar as these are subject to the AHV contribution obligation. Two thirds of the remaining sum and the expenditure for family allowances for farmers are covered by the Confederation, while the cantons cover a third. Additionally, there is the revenue from the fund for family allowances for agricultural workers and farmers in mountain areas, which is used to reduce the cantonal contributions. The total expenditure for agriculture family allowances declined by 5.2% year on year to reach around 111 million. Maternity insurance has been regulated at federal level since July 1, 2005; it is part of compensation for loss of earnings (EO). Aside from the federal maternity compensation, the cantons of Geneva (since July 1, 2001) and Fribourg (since July 1, 2011) have introduced supplementary rules. While maternity insurance in Fribourg does not comply with the ESA 2010 sectoring guidelines for financial statistics, that of Geneva does, which is why it is included in the social security funds sub-sector. The maternity insurance fund in the canton of Geneva posted a deficit of 2.4 million in its 2016 financing statement. While the contribution rate remained at the previous year s level of 0.082%, receipts fell by 0.9% to around 25 million. Following the introduction of federal maternity insurance, the employee and employer contribution rates for cantonal maternity insurance in Geneva were adjusted several times. In 2006, they were lowered from 0.26% to 0.04% of AHV-related salaries and income. This caused the cantonal maternity compensation fund to record a deficit from 2006 to 2009, which is why the contribution rates were raised again to 0.09% in Consequently, the receipts from social security contributions by employers and insured persons rose by 13 million. The compensation for loss of earnings (EO) fund ended 2016 with a deficit in its financing statement for the first time since It is very sensitive to changes in contributions and payments to private households. Thanks to a contribution increase from 0.3% to 0.5% of income, contributions by employers and insured persons jumped by 722 million to 1.7 billion in In 2016, the receipts from contributions by insured persons and employers amounted to 1.7 billion, 8.9% down on the previous year, while operating expenditure rose by 2.6%. 68

71 02 The FS Model Figure 6: Expenditure by function social security funds, 2016 Total expenditure: CHF Taxes 0.2% Social welfare n.e.c. 2.9% Asset and debt management 0.2% Unemployment 12.1% Disability 15.1% Family and young people 0.2% Old age and survivors 69.4% In 2016, the expenditure of old-age and survivors' insurance was up by 9.6% relative to 2012, while the number of recipients of main, supplementary and survivors' pensions was 9.0% higher. At the end of 2016, the consolidated total assets of the social security funds amounted to 41.8 billion (+2.9%). Relative to the previous year, the proportion of liabilities declined from 10% to 9.3%. This was partly due to the fact that the ALV compensation fund was able to repay loans of 100 million to the Federal Treasury thanks to the positive result. Those outstanding loans fell to a total of 2.5 billion at the end of However, the repayment had no effect on the general government sector s gross debt. Because of debt consolidation, the social security funds liabilities are offset against the Confederation s receivables. The consolidation rule also applies for receivables and liabilities between the social security funds. At the end of 2016, the social security funds gross debt remained virtually unchanged at 3 billion. The bulk of the 40.4 billion in consolidated non-administrative assets consisted of the AHV compensation fund s financial investments. Relative to 2015, the financial investment holdings of shares and investment funds increased to 14.4 billion (+1.4 bn), and those of interest-bearing investments rose to 14.7 billion (+0.5 bn). Since the federal law to restructure disability insurance came into force on January 1, 2011, the statements of financial position and operating accounts of the AHV, IV and EO have been kept separately in addition to the independent ALV compensation fund. The AHV, IV and EO funds were processed through a single compensation fund until Compared with the opening statement of financial position, AHV total assets fell by 0.9% to 46.3 billion in Nonadministrative assets increased by 3.6%, while AHV administrative assets fell by 5.9% because of declining loans. Moreover, it is particularly noteworthy that unemployment insurance assets are almost exclusively non-administrative in nature (98.7%). The social security funds net assets/equity is comprised of the accumulated surplus/deficit as well as liabilities or advances toward special financing and funds in net assets/equity. The social security funds held a total of 37.9 billion in net assets/equity at the end of This was an increase of 1.4 billion compared with the previous year. 69

72 02 The FS Model Financial statements social security funds CHF mn Statement of financial performance Revenue Expenses Surplus/deficit Financing statement Receipts Expenditure Overall fiscal balance Statement of financial position Non-administrative assets Administrative assets Liabilities Net assets/equity Total assets Statement of financial performance social security funds CHF Operating expenses Personnel expenses General, administrative and operating expenses Defense expenses Depreciation, administrative assets Net expense for funds and special financing Transfer expenses Operating revenue Tax revenue Royalties and concessions Revenue from exchange transactions Miscellaneous revenue Withdrawals from funds and special financing Transfer revenue Operating result Financial expense Financial revenue Financial result Ordinary result Extraordinary expenses Extraordinary revenue Extraordinary result Surplus/deficit

73 02 The FS Model Financing statement social security funds CHF Operating expenditure Personnel expenditure General, administrative and operating expenditure Defense expenditure Transfer expenditure Operating receipts Tax receipts Royalties and concessions Receipts from exchange transactions Miscellaneous receipts Transfer receipts Operating result Financial expenditure Financial receipts Financial result Investment expenditure Investment receipts Net investments Ordinary result Extraordinary expenditure Extraordinary expenditure Extraordinary investment expenditure Extraordinary receipts Extraordinary receipts Extraordinary investment receipts Extraordinary result Overall fiscal balance

74 02 The FS Model Statement of financial position social security funds CHF Assets Non-administrative assets Cash and cash equivalents Receivables Short-term financial investments Prepaid expenses and accrued income Inventories and work in progress Financial investments Tangible fixed assets, NAA Receivables from special financing and funds in liabilities Administrative assets Tangible fixed assets, AA Inventories, AA Intangible fixed assets Loans and financial interests n.e.c. Loans Financial interests, share capital Investment contributions Assets due from government units Accumulated additional depreciation and amortization Liabilities and equity Liabilities Current liabilities Short-term financial liabilities Accrued expenses and deferred income Short-term provisions Long-term financial liabilities Liabilities toward government units Long-term provisions Restricted funds Net assets/equity Financing and funds in net assets/equity Global budget area reserves Advance financing Restatement reserve Revaluation reserve, non-administrative assets Other net assets/equity Accumulated surplus/deficit

75 02 The FS Model Expenditure by function social security funds CHF Total Social security Sickness and accident Disability Old age and survivors Family and young people Unemployment Subsidized housing Social welfare and asylum affairs R&D social welfare Social welfare n.e.c Finances and taxes Taxes Tax agreements Fiscal equalization and cost compensation Revenue shares in federal receipts without appropriation Other revenue shares without appropriation Asset and debt management Redistribution Undivided items Statement of financial performance and financing statement, social security funds 2016 CHF mn Revenue Expenses Balance Receipts Expenditure Balance Total Old-age and survivors' insurance (AHV) Disability insurance (IV) Compensation for loss of earnings (EO) Agriculture family allowances (FL) Unemployment insurance (ALV) Maternity insurance, Geneva The total has been adjusted for transfers between government units. Statement of financial position, social security funds 2016 CHF mn Nonadministrative assets Administrative assets Liabilities Net assets/equity Total assets Gross debt Total Old-age and survivors' insurance (AHV) Disability insurance (IV) Compensation for loss of earnings (EO) Agriculture family allowances (FL) Unemployment insurance (ALV) Maternity insurance, Geneva

76 02 The FS Model 27 Financial indicators and ratios This section explains the financial ratios in accordance with the Harmonized Accounting Model for the Cantons and Municipalities (HAM2), as well as the indicators used for the sub-sectors. They serve as benchmarks for the individual cantons. The Financial Statistics Section seeks to calculate and comment on the financial ratios in accordance with the HAM2 Handbook for the general government sector and its sub-sectors. The main financial ratios used are the net indebtedness ratio, the self-financing ratio and the interest burden ratio. The definitions and benchmark values for the financial ratios can be found in the section Methodological foundations (see The FS Model section under Models ). The Confederation s net indebtedness ratio has been trending downward in recent years: while it amounted to 269.3% in 2004, it had fallen to 170.7% by The decline relative to 2015 was 2.9 percentage points. The cantons recorded a similar decline (-2.8 percentage points vs. 2015), and their ratio was 69.4% in The ratio has been declining at municipal level since 2013, and the decrease was as much as 15.5 percentage points in 2016 due to a sharp reduction in net debt. The social security funds have a negative net indebtedness ratio. The figures for this ratio correspond to the difference between liabilities and non-administrative assets. In the case of the social security funds, the level of debt is so low that this difference is negative and therefore the ratio is too. Consequently, there is no need for action with the social security funds from this perspective. In relation to the HAM2 benchmark values, therefore, the recorded figures were good for the cantons and municipalities and poor for the Confederation. The general government sector posted a good net indebtedness ratio (63.5%) at the end of The self-financing ratio indicates what proportion of its total net investments a government unit can finance with funds generated by itself. In 2016, the self-financing ratio of the Confederation amounted to 104.6%, a drop of 10 percentage points relative to 2015 as a result of lower self-financing. In the case of the cantons, the self-financing ratio rose by 69.8 percentage points to 116.5% in 2016 due to a significant increase in self-financing and at the same time lower net investments. With a ratio of 100.8%, the municipalities were also able to finance a higher proportion of their net investments from their own funds in 2016 than the previous year. The municipalities have thus been back in the benchmark range of >100% for a boom since The self- financing ratio of the general government came to 114% in 2016, which was 18.2 percentage points higher than the preceding year. The Confederation s interest burden ratio edged up by 0.3 percentage points to 2%, thereby keeping it at a very low level. The Confederation s freedom of maneuver is therefore deemed to be good according to the HAM2 benchmarks (0% to 4%). The cantons also retained a good interest burden ratio of 0.3%. The proportion of current revenue linked to net interest likewise decreased on the previous year for the municipalities (-0.2 percentage points) and amounted to 0.9% in As the social security funds had large investment amounts, interest income significantly exceeded interest expense. Consequently, there was a negative interest burden ratio, and the social security funds have major leeway in this area. Net interest reduced the general government s current revenue by 0.7%, which was 0.2 percentage points less than the previous year. The proportion of gross debt is one variable for assessing the indebtedness situation. In 2016, the general government sector had a good proportion of gross debt (50% to 100%). Relative to 2015, it fell by 2.7 percentage points to 97.8%. The municipalities had an average level in 2016 (108.4%; -2.8 percentage points relative to the previous year). Only the cantons proportion of gross debt was up on 2015, amounting to 75% in In contrast, there was a decline of 6.7 percentage points for the Confederation. Its proportion of gross debt was 140.8%, meaning that its level of debt is average relative to current revenue. The social security funds proportion of gross debt has been falling since 2010 and amounted to 4.7% in The proportion of investment shows activity in the area of investments. Relative to 2015, the general government sector s proportion fell by 0.3 percentage points to 9.3%. The general government s level was thus considered weak like the previous year, having missed the benchmark for an average level of investing activity (10% to 20%). The decline was due to reduced investing activity in the cantons and higher current expenditure in the case of the Confederation, whose percentage increased. The Confederation and the municipalities had an average level of investing activity. This indicator cannot be calculated for the social security funds, as they have no investing activity. 74

77 02 The FS Model The proportion of debt servicing is a measure of the burden placed on government units by costs of capital. Coming in at 10.4%, the burden was sustainable for the general government in Relative to the previous year, the proportion of debt servicing for the cantons sub-sector rose from 5.1% to 5.7%. In the case of the Confederation, the increase amounted to 6.3 percentage points, which was attributable to a surge in depreciation on investment contributions. In contrast, the municipalities financial leeway again became bigger than the previous year. The proportion of debt servicing fell to 10.3%, but remained average. The proportion of self-financing indicates the proportion of its revenue a government unit can use to finance its investments. According to the HAM2 benchmarks, the Confederation s and municipalities values were not poor (i.e. less than 10%). While the cantons had an average value of 9.3% in 2009, this fell to 1.8% in The cantons proportion of self-financing was 5.5% in The Confederation s proportion of self-financing dropped from 12.8% to 11% as a result of lower self-financing. This was largely due to higher depreciation on investment contributions. In contrast, there were increases in the other subsectors of the general government sector. The strongest yearon-year increase was in the cantons sub-sector (+3 percentage points). Overall, the proportion of self-financing for the general government sector grew by 1 percentage points, but remained poor at 9.1% in The fiscal capacity utilization index is derived from the ratio between a canton s fiscal capacity utilization and that of all cantons. The index value for all cantons is set at 100. The cantonal fiscal capacity utilization for 2018 is the average tax receipts collected from 2012 to 2014 by a canton and its municipalities according to the financial statistics, divided by the resource potential for the 2018 reference year according to national fiscal equalization. The resource potential for 2018 is calculated from the average aggregate tax base for the years 2012 to 2014, where the aggregate tax base is comprised of income, the increase in assets and gains. There was a reduction in fiscal capacity utilization in 17 cantons, although it was minor in several cantons relative to previous years. The index declined the most in the cantons of Basel Stadt and Valais. The fiscal burden increased in eight cantons, with the sharpest rises seen in the cantons of Neuchâtel, Vaud and St. Gallen. On average in Switzerland, the cantons and municipalities utilize 25.2% of their resource potential by means of taxes. Relative to the last reference year of 2017, fiscal capacity utilization thus slipped slightly (see table entitled Fiscal capacity utilization by canton ). Little has changed on the whole with respect to the cantonal differences. Particularly at the upper and lower ends of the scale, the order has remained virtually the same. The central Swiss cantons of Nidwalden, Zug and Schwyz are well below the Swiss average, with Schwyz recording the lowest level of all at 10.4%. The fiscal burden is once again highest in a number of French-speaking cantons and Bern, with Geneva being the leader at 34.5%. The middle is virtually unchanged too. 75

78 02 The FS Model Financial ratios General government Net indebtedness ratio Self-financing ratio Interest burden ratio Proportion of gross debt Proportion of investment Proportion of debt servicing Proportion of self-financing Financial ratios Confederation Net indebtedness ratio Self-financing ratio Interest burden ratio Proportion of gross debt Proportion of investment Proportion of debt servicing Proportion of self-financing Financial ratios Cantons Net indebtedness ratio Self-financing ratio Interest burden ratio Proportion of gross debt Proportion of investment Proportion of debt servicing Proportion of self-financing Financial ratios Municipalities Net indebtedness ratio Self-financing ratio Interest burden ratio Proportion of gross debt Proportion of investment Proportion of debt servicing Proportion of self-financing Financial ratios Social security funds Net indebtedness ratio Self-financing ratio Interest burden ratio Proportion of gross debt Proportion of investment Proportion of debt servicing Proportion of self-financing

79 02 The FS Model Fiscal capacity utilization by canton in % Reference year 2014 ( ) 2015 ( ) 2016 ( ) 2017 ( ) 2018 ( ) 2018 ( ) Assessment years in % in % in % in % in % Index Zurich 23.9% 24.1% 23.3% 23.1% 22.4% 88.8 Bern 31.9% 31.6% 30.3% 30.1% 29.6% Luzern 24.7% 23.9% 21.5% 20.5% 19.8% 78.7 Uri 22.1% 19.8% 18.5% 18.4% 18.5% 73.5 Schwyz 12.2% 11.3% 10.5% 10.6% 10.4% 41.3 Obwalden 19.2% 18.9% 17.8% 16.8% 16.3% 64.6 Nidwalden 16.3% 15.6% 13.5% 12.5% 11.9% 47.2 Glarus 23.6% 23.2% 20.9% 20.8% 20.3% 80.6 Zug 13.9% 12.9% 11.9% 11.8% 11.8% 46.9 Fribourg 28.6% 28.1% 27.1% 26.4% 25.5% Solothurn 27.7% 27.8% 26.8% 26.8% 26.2% Basel Stadt 30.7% 30.7% 30.2% 28.8% 27.6% Basel Landschaft 25.0% 25.3% 25.4% 25.9% 25.7% Schaffhausen 20.6% 20.7% 20.4% 21.3% 21.8% 86.8 Appenzell Ausserrhoden 23.1% 23.6% 22.2% 22.3% 22.1% 87.7 Appenzell Innerrhoden 20.1% 20.5% 20.0% 19.8% 19.7% 78.3 St. Gallen 25.6% 24.8% 23.5% 24.1% 24.7% 98.2 Graubünden 27.6% 27.0% 25.4% 25.1% 25.3% Aargau 23.0% 22.3% 21.9% 22.1% 22.2% 88.2 Thurgau 23.8% 23.3% 21.9% 21.6% 21.8% 86.7 Ticino 26.3% 27.0% 27.0% 26.7% 26.1% Vaud 31.7% 31.9% 31.2% 32.3% 33.0% Valais 29.5% 30.5% 29.7% 29.3% 28.2% Neuchâtel 31.5% 32.0% 30.9% 29.6% 30.5% Geneva 35.5% 34.9% 34.2% 35.1% 34.5% Jura 34.7% 34.2% 32.8% 32.1% 31.7% Switzerland 26.7% 26.4% 25.5% 25.4% 25.2%

80 02 The FS Model Figure 7: Fiscal capacity utilization by canton, 2018, in % Schwyz Zug Nidwalden Obwalden Uri Appenzell IR Luzern Glarus Thurgau Schaffhausen Appenzell AR Aargau Zurich St. Gallen Graubünden Fribourg Basel Landschaft Ticino Solothurn Basel Stadt Valais Bern Neuchâtel Jura Vaud Geneva Swiss average Regarding the cantonal distribution, little has changed overall relative to the last reference year, Particularly at the upper and lower ends of the scale, the order has remained virtually the same. The central Swiss cantons of Nidwalden, Zug and Schwyz are well below the Swiss average, with Schwyz recording the lowest level of all at 10.4%. The fiscal burden is highest in a number of French-speaking cantons and Bern, with Geneva being the leader at 34.5%. 78

81 03 ANALYSIS An image of past fiscal policy is obtained by taking a look at debt ratios. For the most part, the ratios reflect the development of government units overall fiscal balances as well as regional economic performance. But how have the debt ratios of Switzerland s regions and cantons developed and how high are they? The following section is based on gross debt as defined in the Harmonized Accounting Model for the Cantons and Municipalities (HAM2) and as implemented in the FS Model. In the FS Model, the gross debt 1 of Switzerland s general government sector is comprised of the debt of the Confederation, cantons, municipalities and social security funds. The social security funds debt is largely determined by unemployment insurance. Given that unemployment insurance debt is mainly toward the Confederation, the social security funds debt is eliminated to a large extent during general government sector consolidation. Consequently, general government debt is approximately equal to the sum of federal, cantonal and municipal debt. 31 Reduction in debt thanks to economic growth and fiscal rules The debt reduction trend commenced in 2003 thanks to the favorable economic climate from mid-2003 to mid-2008, the introduction of the debt brake for the Confederation and fiscal rules for the cantons and municipalities. The figure Trend of gross debt with the FS Model shows that total general government debt is strongly influenced by fluctuations in federal debt. The gross debt of the general government sector with reference to the HAM2 in relation to nominal gross domestic product (GDP) rose from 29.3% in 1990 to 51.6% in A switch to debt reduction then commenced with the improved economic climate from mid-2003 to mid-2008 and the ensuing growth in receipts. However, greater budgetary discipline at all levels of government also played an important role, with the introduction of the debt brake for the Confederation and compliance with cantonal fiscal rules, in particular, making a significant contribution to debt reduction. This is how not only the Confederation, but also the cantons and municipalities, managed to reduce their debt. The reduction in the gross debt ratio with reference to the HAM2 definition for the general government sector came to a standstill in At 33.0%, it was still only 3.7 percentage points higher than in The revised legislative provisions on the financing of public-sector entities pension funds 2 halted the debt reduction trend. For example, the recapitalization of several pension funds affected not only the latest results, but also cantonal and municipal debt levels (particularly long-term financial liabilities). The general government s debt ratio based on the national FS Model has been falling since It amounted to 32.2% of GDP in 2016 thanks to the decline in debt in the Confederation and social security funds sub-sectors. 1 Gross debt consists of current liabilities as well as short-term and long-term financial liabilities as calculated under the national FS Model. This does not include the derivative financial instruments and investment contributions posted as liabilities contained in these items. Gross debt, just like Maastricht debt, is valued at nominal values. Maastricht debt, which is calculated in the international GFS Model, is more narrowly defined. For example, some current liabilities, which are part of gross debt under the FS Model, are allocated to other accounts payable under the GFS Model, which are not part of Maastricht debt. Consequently, the Maastricht debt ratio is an average of 2.8% of GDP lower than the gross debt ratio. 2 These have been in force since January 1, With the aim of guaranteeing the security of occupational pension schemes, they require the attainment of a differentiated target coverage ratio of 80% within 40 years and the removal of pension funds from the structure of the public administration. 79

82 03 Analysis Figure 8: Trend of gross debt with the FS Model mn % Confederation Cantons General government in % of GDP Municipalities Social security funds The government units' budget discipline has improved significantly since the 1990s. Although the 2016 gross debt ratio of 32.2% of GDP was 2.9 percentage points above the 1990 level, it was considerably lower than the Maastricht debt ceiling of 60%. Calculated in the GFS Model, Maastricht debt is an average of 2.8% lower than the gross debt ratio in accordance with the FS Model. 80

83 03 Analysis 32 Clear rift in Switzerland Over the past 20 years, people living in the French-speaking cantons particularly Geneva have had the biggest debt burden. The cantonal debt ratio trend shows that Lake Geneva cantons have a higher ratio than Mittelland cantons and that the ratio is significantly lower in Eastern Switzerland. In order to assess the development of regional debt and the total debt of people living in a given canton, the shares of federal debt were calculated based on the number of inhabitants and these were then added to the gross debt of the cantons (including municipalities). The cantonal and regional debt ratios are based on the GDP estimates of the Federal Statistical Office (FSO). 1 The figure Total debt by region shows the debt ratio trends for Switzerland s seven largest regions. It is obvious that there is an east-west rift, as well as a north-south one. The debt ratios of the Lake Geneva cantons are moving at a higher level than those in the Mittelland cantons, and the ratios in Eastern Switzerland are in turn significantly lower than those in the Mittelland. A similar picture of falling debt ratios can be seen from north to south. Debt ratios were declining in all regions from 2004 to Much of the reduction was due to the introduction of the debt brake at federal level, as well as the favorable economic climate (2003 to 2008) and the associated surpluses. However, the increase in the regional debt ratios seen in the 1990s was also attributable mainly to the rise in federal debt. The debt ceiling of 60% of nominal GDP set for the eurozone members in the Maastricht criteria within the framework of the Stability and Growth Pact was exceeded by seven cantons at the turn of the millennium. In the period under review (1990 to 2016), the average debt ratios were highest in the cantons of Geneva, Valais, Jura and Neuchâtel, and lowest in the cantons of Zug, Glarus, Schaffhausen and Basel Stadt. Figure 9: Total debt by region in % of GDP General government Lake Geneva region Espace Mittelland Northwestern Switzerland Zurich Eastern Switzerland Central Switzerland Ticino The gross debt ratios of all regions declined in 2004 to Ticino's higher gross debt in 2014 was due primarily to the restatement of the canton's statement of financial position in connection with the changeover to the Harmonized Accounting Model (HAM2). 1 The cantonal GDP data is based on the revised system of national accounts of August 2017 and exists for the years 2008 to Fiscal 2016 is based on the simplified assumption that the economic performance of the cantons recorded growth in line with the national average. Back-calculation up to 1990 is based on the cantonal net income at factor cost (FSO). 81

84 03 Analysis 321 Lake Geneva region If the focus turns to the Lake Geneva region (see figure Lake Geneva debt in % of GDP ), it can be seen that the cantons of Geneva, Vaud and Valais had similar debt ratio trends until In the canton of Geneva, higher tax receipts combined with constant tax multipliers 1 and lower investment expenditure improved its fiscal balance and enabled the debt ratio to fall from However, the debt ratio started to climb again in 2001 in the wake of the economic slowdown triggered by the bursting of the dotcom bubble. Geneva s debt (including the share in federal debt) reached a peak of 25.4 billion in 2006, and its debt ratio was at its highest level of 73.2% in It had fallen to 47.3% of nominal GDP by 2010, and has been rising again since then to reach 52.0% in It was 48.7% in Unlike in Geneva and Vaud, the debt ratio in the canton of Valais peaked already in Valais achieved a turnaround from 2003 onward on the back of continually improving fiscal balances and lower federal debt. Despite the financial crisis and recessionary environment, its economy posted real GDP growth in 2009 and the cantonal debt ratio reached its third-lowest level of 43.2% of nominal GDP. Only in 1990 and 2011 was the ratio lower. At the end of 2016, the Valais debt ratio was unchanged on the previous year at 44.6%. Figure 10: Lake Geneva debt in % of GDP Lake Geneva region GE VD VS The debt ratio of the canton of Vaud is always below that of the Lake Geneva region during the period under review. However, the difference is minimal in the financial crisis years from 2007 to The tax multipliers specified in this chapter are from the Federal Tax Administration (FTA) and relate to the income and wealth taxes of natural persons in the cantons and cantonal capitals. 82

85 03 Analysis 322 Eastern Switzerland In Eastern Switzerland, the cantons debt ratios range from 20% to 50% of GDP (the figure Eastern Switzerland debt in % of GDP shows a selection of cantons). The canton of Glarus had the second-lowest debt ratio until the onset of the banking and financial crisis in the fall of Only in 1999 to 2001 was the ratio of Appenzell Innerrhoden lower thanks to strong GDP growth. The debt ratio of Glarus reached its peak of 38.7% in 2008; however, the level of debt was at its highest in The reclassification of liabilities as net assets/equity in connection with the changeover to the Harmonized Accounting Model for the Cantons and Municipalities (HAM2) and the Glarus municipal reform caused debt to plunge in 2011, and the debt ratio fell by 3.4 percentage points to 31.8%. The canton of Appenzell Innerrhoden had Switzerland s fourth-strongest economic growth rate in the previous year, behind the cantons of Zug, Nidwalden and Schaffhausen. Consequently, the canton of Appenzell Innerrhoden and its municipalities earned significantly higher receipts from direct tax, natural persons and legal entities in Tax receipts also rose as a result of higher inheritance and gift tax, thus enabling debt to be further reduced. The canton s tax multiplier remained unchanged at 85%; that of the cantonal capital was raised by 5 percentage points to 97%. The debt ratio of Appenzell Innerrhoden, which is the only canton not to have fiscal rules, has been at the bottom of the range for Eastern Switzerland cantons since The ratio of the canton of Graubünden is at the upper end of the range. It has again been less than 40% of the canton s GDP since 2009 (as it was in the early 1990s). The debt ratios of the canton of St. Gallen and Eastern Switzerland move in close step with one another. This is hardly surprising, as St. Gallen accounted for 43% of economic output in Eastern Switzerland in the middle of the period under review. Between 1993 and 1995, St. Gallen s ratio was slightly higher than that of Eastern Switzerland, but it was sometimes approximately 2 percentage points lower than it from 2007 to The canton has managed to comply with the debt brake since 2010 only by taking large sums from its freely disposable net assets/equity. It was necessary to raise the cantonal tax multiplier from 95% to 105% in 2012 because of the budget deficit. In contrast, the cantonal capital s tax multiplier remained unchanged at 144%. At the end of 2016, St. Gallen s debt ratio was 28.5% of nominal GDP, which was its third-lowest level for the period under review. Only in 1990 and 1991 was it slightly lower. Figure 11: Eastern Switzerland debt in % of GDP Eastern Switzerland AI GL GR SG The debt ratios of Eastern Switzerland and the canton of St. Gallen are in close step with one another. This is hardly surprising, as St. Gallen accounted for around 43% of economic output in Eastern Switzerland in the middle of the period under review. 83

86

87 04 THE GFS MODEL In order to facilitate international comparisons, the Financial Statistics Section adopts the guidelines of the Government Finance Statistics Manual 2014 (GFSM 2014) of the International Monetary Fund (IMF). The following sections provide a commentary on the financial statistics statements of the general government sector and its sub-sectors in accordance with this GFS Model. 41 General government The general government sector s financial situation remained good, but deteriorated somewhat relative to the previous year. Both the surplus in the operating statement and the positive net lending/ borrowing were down on The deficit/surplus ratio thus fell from +0.6% in 2015 to +0.4% in The tax-to-gdp ratio rose from 27.6% to 27.8% thanks to higher taxes. The general government sector s operating statement for 2016 showed a surplus of 4.1 billion. Revenue growth amounted to 0.5% relative to the previous year, which was weaker than that of nominal gross domestic product (GDP). Taxes, the most important revenue component, were up by 2.1 billion. In 2016, taxes were comprised of the following components: taxes on income, profits and capital gains (61.3%), taxes on property (8.6%), taxes on goods and services (28.5%) and other taxes (0.7%). Taxes on international trade and transactions, which accounted for 0.8% of the total, surged by 7.4% year on year. The 3.1 billion increase in expense was driven mainly by higher social benefits (+2.1 bn) and compensation of employees (+631 mn). In contrast, grants and interest expense declined. The low interest rate environment and attractive refinancing opportunities led to low interest payable for the government units once again in Relative to 2015, interest expense dropped by 11.7%. The breakdown by task area shows that the general government sector incurs the majority of its expenditure in the Social protection division. In 2016, this division accounted for 39.5% of total expenditure, an increase of 2.8% relative to The reasons for the additional expenditure of 2.4 billion for Social protection can be found mainly in the higher number of old-age and survivors insurance claimants (+1.9% compared with 2015). The government units also posted additional expenditure in favor of the functional groups Unemployment (+7.9%) and Social exclusion n.e.c. (+7.3%). The expenditure growth in the second functional group was primarily due to the increase in migration and in the number of those in receipt of social assistance benefits. In percentage terms, the strongest growth was posted by Defense (+4.6%). Only the two task areas General public services (-3%) and Housing and community amenities (-2%) recorded lower expenditure. The general government s assets (around 492 bn) are comprised of financial and non-financial assets. The stocks of non-financial assets, consisting of fixed assets, inventories, valuables and nonproduced assets, increased by 5.4 billion. Financial assets were up too, with an increase of 21.5 billion. The surge in financial assets was driven essentially by higher equity and investment fund shares or units. For example, the Confederation s and cantons shares in the equity of the Swiss National Bank (SNB) alone rose by 23.5 billion. The stake of the Confederation in the equity of the SNB amounts to one third and that of the cantons two thirds. The equity of the SNB amounted to 84.5 billion at the end of 2016 and primarily comprised provisions for currency reserves, the distribution reserve and the surplus or deficit for the year. While the SNB posted a net loss of 23.3 billion the previous year, it generated a net profit of 24.5 billion in The positive result was due in particular to gains on foreign currency positions (19.4 bn) and gold holdings (3.9 bn). The general government sector s financial assets had a breakdown of 91.3% domestic and 8.7% foreign at the end of The proportions thus changed only marginally relative to the previous year (-0.2 percentage points at the expense of the domestic side). At the end of 2016, financial assets amounted to billion, compared to liabilities of billion. Liabilities fell by 5.2 billion due to lower other accounts payable. 85

88 04 The GFS Model Statement of non-financial transactions General government CHF Revenue Taxes Social contributions Grants Other revenue Expense Compensation of employees Use of goods and services Consumption of fixed capital Interest Subsidies Grants Social benefits Other expense Net operating balance Net acquisition: non-financial assets Acquisition: non-financial assets Disposal: non-financial assets CFC: non-financial assets Net lending/borrowing Balance sheet General government CHF Non-financial assets Financial assets Liabilities Net worth Expenditure by government function General government CHF Total General public services Defense Public order and safety Economic affairs Environmental protection Housing and community amenities Health Recreation, culture and religion Education Social protection

89 04 The GFS Model Figure 12: Expenditure by government function general government, 2016 Total expenditure: CHF General public services 14.2% Social protection 39.5% Defense 2.4% Public order and safety 4.9% Economic affairs 11.9% Environmental protection 1.9% Housing and community amenities 0.6% Health 6.7% Education 15.5% Recreation, culture and religion 2.5% Around four fifths of 2016 expenditure growth occurred in the "Social security" task area. The growth drivers were migration, unemployment and old-age and survivors' insurance. 87

90 04 The GFS Model 42 Confederation Relative to the previous year, the Confederation s financing statement posted a smaller surplus in 2016, causing the deficit/surplus ratio to fall from +0.4% to +0.1% of GDP. The tax-to-gdp ratio declined by 0.1 percentage points. The Confederation ended fiscal 2016 with positive net lending/ borrowing of 971 million. The operating statement has posted a surplus of at least a billion since In 2016, the surplus amounted to 2.1 billion, which was down 1.5 billion on the previous year. The smaller surplus was due to expense, as revenue remained roughly at the previous year s level of 71.6 billion. The marginal decline of 154 million in revenue was mainly due to higher grants (+498 mn) and lower other revenue (-630 mn). The decrease in other revenue was due primarily to lower revenue from fines, penalties and forfeits, as well as lower property income (dividends). Taxes, the main revenue component, remained at 64.4 billion in They are made up of the following components: taxes on goods and services (56.4%), taxes on income, profits and capital gains (41.7%), taxes on international trade and transactions (1.8%), and other taxes (0.1%). Expenditure amounted to 70.6 billion in It was up by 2.1% on the previous year. A breakdown of total expenditure reveals the following: with a share of 29.8%, the General public services task area is the second-largest expenditure item, behind Social protection (32.1%). Federal expenditure for Social protection was up by 2.2% year on year. This went to the area of old-age and survivors insurance due to the higher number of pension recipients, as well as to social exclusion n.e.c. In percentage terms, the biggest rise in federal expenditure was seen in Environmental protection. The 16.1% rise was due mainly to wastewater disposal. Measures at selected wastewater treatment plants are intended to reduce the introduction of micro-pollutants into bodies of water. In 2014, Parliament passed an amendment to the Water Protection Act to finance the elimination of trace substances from wastewater in accordance with the polluter pays principle. The compensation was granted for the first time in Only General public services saw a slight expenditure reduction of 83 million (-0.4%) relative to Thanks to fair value adjustments on various financial assets, the net worth of the Confederation rose from 33.7 billion to 42.4 billion. The liabilities of billion work out at 83.7% vis-à-vis domestic investors and 16.3% vis-à-vis foreign investors. Total liabilities were down by 5.9 billion relative to The biggest decrease was in debt securities (-5.7 bn), which was largely attributable to Confederation bond redemptions. In 2016, the larger sub-sections accounted for the following shares of total liabilities: debt securities (73%), other accounts payable (13.8%), currency and deposits (7%) and loans (4.1%). The Confederation s assets, consisting of financial and nonfinancial assets, increased by 1.6% in The increase occurred mainly in the area of financial assets, which amounted to 86.2 billion in % of these were domestic. Overall, the Confederation had loans and equity and investment fund shares or units worth 10.5 billion and 60 billion, respectively. The Confederation s total holdings of currency and deposits in Switzerland and abroad (8.8 bn) fell by 3.6 billion. The amount in sight deposit accounts with the SNB fell largely because of the redemption of two bonds. In contrast, equity and investment fund shares or units surged by 7.5 billion. The sharp increase in shares and other equity can be explained primarily by the fact that the Confederation s share in the equity of the Swiss National Bank (SNB) soared (around 7.8 bn). The general government s entitlement to the equity of the SNB is divided between the Confederation (1/3) and the cantons (2/3). 88

91 04 The GFS Model Statement of non-financial transactions Confederation CHF Revenue Taxes Social contributions Grants Other revenue Expense Compensation of employees Use of goods and services Consumption of fixed capital Interest Subsidies Grants Social benefits Other expense Net operating balance Net acquisition: non-financial assets Acquisition: non-financial assets Disposal: non-financial assets CFC: non-financial assets Net lending/borrowing Balance sheet Confederation CHF Non-financial assets Financial assets Liabilities Net worth Expenditure by government function Confederation CHF Total General public services Defense Public order and safety Economic affairs Environmental protection Housing and community amenities Health Recreation, culture and religion Education Social protection

92 04 The GFS Model Figure 13: Expenditure by government function Confederation, 2016 Total expenditure: CHF Social protection 32.1% General public services 29.8% Education 5.3% Recreation, culture and religion 0.7% Health 0.5% Environmental protection 1.2% Economic affairs 22.0% Defense 6.9% Public order and safety 1.5% Relative to 2015, the Confederation's expenditure increased by 1.5 billion (+2.1%). Around a third of the 2016 increase was attributable to "Social security" (particularly migration, health insurance and old-age and survivors' insurance). 90

93 04 The GFS Model 43 Cantons Compared with the previous year, the financial situation of the cantons sub-sector improved slightly, with net lending/borrowing rising by around 0.5 billion, but the deficit/surplus ratio remained unchanged at +0.1% of nominal GDP. The cantons operating statement closed with a surplus of 552 million in Revenue grew by 1.3% to 90.3 billion year on year. Of the different revenue components, taxes posted the strongest growth, rising by 2.6% to 45.7 billion in Their revenue share increased from 49.9% in 2015 to 50.6% in Around a quarter of 2016 revenue resulted from grants, which grew by 1%. The increase of 230 million was largely attributable to current grants from other domestic government units. This revenue stood against expense of 89.8 billion. Expense was up by 1%, whereby the various components performed differently. In percentage terms, grants had the strongest growth (+9.4%). The three largest expense categories in terms of volume accounted for 61.3% of expense in 2016 and changed as follows: while subsidies remained at the previous year s level, compensation of employees rose by 1.3% and social benefits grew by 5.8%. If the task areas are set against one another at the highest level, there is no apparent shift in emphasis in the expenditure policy of the cantons sub-sector. The Education division remained proportionately the largest. Like the previous year, it accounted for 25.8% of total expenditure in The next-largest task area, Social protection, accounting for 21.1% of total expenditure (2015: 20.1%), rose by 5.6%. The increase in the order of 999 million consisted largely of additional expenditure on Social exclusion n.e.c. (+472 mn) and Sickness and disability (+278 mn). The cantons spent 12.6 billion on Health, the third-largest expenditure item, in This area was up by 1.2 billion relative to 2012 (year when case-based flat-rate payments were introduced as part of the new hospital financing system). Health expenditure grew by 235 million, or 1.9%, year on year. General public services meanwhile recorded the biggest percentage decline (-4.8%), as the restructuring measures for the funding of cantonal pension funds were less of a burden on the cantonal budget. It accounted for 15.4% of the cantons total expenditure in The assets of the cantons rose by 11.7% to 177 billion in Non-financial assets increased by 1.7 billion largely as a result of restatements in relation to the changeover to the new HAM2 accounting model. The significant increase in financial assets (+16.5%) was driven essentially by equity and investment fund shares or units. This was due in particular to the fact that the cantons share (2/3) in the equity of the Swiss National Bank (SNB) grew very sharply (+15.7 bn). Financial assets, which are entirely domestic, stood against liabilities of 82.6 billion. The breakdown of liabilities was 81.7% domestic and 18.3% foreign. Relative to the previous year, domestic liabilities increased by 2.1 billion, due primarily to other accounts payable and insurance, pension and standardized guarantee schemes. Overall, the cantons net worth rose by 15.9 billion to 94.4 billion. 91

94 04 The GFS Model Statement of non-financial transactions Cantons CHF Revenue Taxes Social contributions Grants Other revenue Expense Compensation of employees Use of goods and services Consumption of fixed capital Interest Subsidies Grants Social benefits Other expense Net operating balance Net acquisition: non-financial assets Acquisition: non-financial assets Disposal: non-financial assets CFC: non-financial assets Net lending/borrowing Balance sheet Cantons CHF Non-financial assets Financial assets Liabilities Net worth Expenditure by government function Cantons CHF Total General public services Defense Public order and safety Economic affairs Environmental protection Housing and community amenities Health Recreation, culture and religion Education Social protection

95 04 The GFS Model Figure 14: Expenditure by government function cantons, 2016 Total expenditure: CHF Social protection 21.1% General public services 15.4% Defense 0.3% Public order and safety 7.9% Education 25.8% Recreation, culture and religion 2.0% Health 14.1% Economic affairs 12.4% Environmental protection 0.9% Housing and community amenities 0.2% If the task areas' shares of total expenditure are considered, it can be seen that the focus of cantonal expenditure policy did not shift in 2016 relative to "Social protection", accounting for 21.1% of 2016 expenditure, experienced the strongest growth (+5.6%, or +999 mn). 93

96 04 The GFS Model 44 Municipalities The accounts of the municipalities sub-sector exhibited negative net lending/borrowing for the eighth year in succession. In contrast, the operating statement recorded a surplus in 2016, like the previous year. The surplus of 752 million in the operating statement was attributable to revenue growth of 1.7%. Revenue amounted to 47 billion in 2016, and 60.6% of this was attributable to taxes. They rose by 938 million, with taxes on income, profits and capital gains alone rising by 608 million. Other revenue accounted for a further 28.4% of 2016 revenue. Expense rose by 1.5% to 46.3 billion. The increase was driven by the development of compensation of employees (208 mn) and use of goods and services (+271 mn). The 3.1% rise in other expense, however, was attributable mainly to higher funding contributions for municipal pension funds. Interest continued to fall like in recent years and posted a year-on-year drop of 118 million to reach another record low thanks to the persistently low level of interest rates. Municipal expenditure amounted to 47.2 billion in The following picture emerges when expenditure is broken down by task area: Education, proportionally the largest division with 27.2%, increased by 2.5% relative to The additional expenditure was primarily for pre-primary and primary education, or was intended for secondary education. A large proportion of the additional expenditure for education not definable by level was generated by municipalities in the cantons of Fribourg, Luzern and Vaud. The second-largest division, Social protection, accounting for 19.3% of total expenditure, rose by 1.8%. There was an expenditure increase particularly in the Social exclusion n.e.c. functional group. The rise apparent since 2008 is attributable to the higher number of social assistance recipients and the still high number of asylum applications. Moreover, expenditure for Old age once again rose sharply (+6.1% vs. 2015) and reached another record high in In Social protection, only expenditure for Family and children fell (-2.6%), mainly in the municipalities of the cantons of Zurich and Aargau. In percentage terms, the largest decline (-2.7%) in 2016 was posted by Housing and community amenities. The reduction in expenditure in the second-smallest task area in terms of volume amounted to 30 million. At the end of 2016, the municipalities recorded assets of billion, a rise of 4.5% on the previous year. Non-financial assets were up by 3.8 billion and financial assets rose by 620 million. In the case of financial assets, the increase concerned mainly equity and investment fund shares (+427 mn; +7.6%) and other accounts receivable (+381 mn; +3.0%). Liabilities amounted to 63.9 billion compared with 2015, the municipalities reduced their liabilities by 1.7 billion. The reduction was evident particularly in the case of other accounts payable. The municipalities net worth has improved continually in recent years. It amounted to 39.8 billion at the end of Year on year, it increased by around 6.1 billion. The growth was driven by fair value adjustments and restatements concerning nonfinancial assets, for example, and the associated revaluation and restatement reserves. Such adjustments occurred within the framework of conversions to the new Harmonized Accounting Model for the Cantons and Municipalities (HAM2), for instance. In 2016, the municipalities of the cantons of Bern and Solothurn, among others, switched to the HAM2. 94

97 04 The GFS Model Statement of non-financial transactions Municipalities CHF Revenue Taxes Social contributions Grants Other revenue Expense Compensation of employees Use of goods and services Consumption of fixed capital Interest Subsidies Grants Social benefits Other expense Net operating balance Net acquisition: non-financial assets Acquisition: non-financial assets Disposal: non-financial assets CFC: non-financial assets Net lending/borrowing Balance sheet Municipalities CHF Non-financial assets Financial assets Liabilities Net worth Expenditure by government function Municipalities CHF Total General public services Defense Public order and safety Economic affairs Environmental protection Housing and community amenities Health Recreation, culture and religion Education Social protection

98 04 The GFS Model Figure 15: Expenditure by government function municipalities, 2016 Total expenditure: CHF Social protection 19.3% General public services 15.0% Defense 0.5% Public order and safety 6.0% Economic affairs 13.1% Education 27.2% Recreation, culture and religion 6.7% Environmental protection 5.8% Housing and community amenities 2.3% Health 4.2% In percentage terms, the biggest rise was seen in "Health" (+10.8%), while the largest task area, "Education", followed in second place with 2.5%. 96

99 04 The GFS Model 45 Social security funds The social security funds sub-sector ended 2016 with large surpluses for the sixth year in succession. A key factor behind this was the fixed-term increase in value added tax rates (2011 to 2017) in favor of disability insurance. The consolidated social security funds sub-sector had positive net lending/borrowing of 742 million in 2016, i.e. 912 million less than the previous year. Coming in at 96.5%, social benefits was the largest expense item and increased by 1.4 billion to 59.5 billion. On the revenue side, social contributions were up by 1.1%. These include the contributions of employers and insured persons to old-age and survivors insurance (AHV), disability insurance (IV), compensation for loss of earnings (EO), agriculture family allowances (FL) and unemployment insurance (ALV). In 2016, these accounted for 71.2% of total revenue. The second-biggest source of receipts is receipts from grants, which remained at the previous year s level of 16.3 billion. Other revenue also increased by 1.4% year on year. Under transactions in non-financial assets, the net acquisition of non-financial assets was -3 million, with slightly less consumption of fixed capital and slightly lower acquisitions. Because of the low net acquisition of non-financial assets, the difference between the net operating balance and net lending/borrowing was minimal. The social security funds expenditure posted a year-on-year increase of 2.4% overall. With an average rate of unemployment 0.1 percentage points higher at 3.3%, the expenditure of the Unemployment functional group rose by 8.4% to 7.3 billion. Expenditure in the Old age functional group, which accounted for two thirds of total expenditure, increased by 767 million, or 1.9%, relative to the previous year. Meanwhile, the second-largest component, Sickness and disability, edged up by only 0.5%. Compared with the peak of 2007, the social security funds expenditure to combat disability has been reduced by somewhat more than a fifth thanks to the measures under the latest revisions of disability insurance. The package of measures under the sixth revision of disability insurance (6a) has been in force partly since January 1, 2012 and partly since January 1, It should further expedite the recovery of disability insurance and thereby sustainably secure financing for the period after the supplementary financing (2011 to 2017). At the end of 2016, the social security funds had assets of 41.8 billion, representing a year-on-year rise of 2.9%. As a result of the positive net operating balance, net worth rose by 3.7% and stood at 38.2 billion at the end of Just like with the national FS Model, where liabilities plunged (-4.4%), liabilities fell by 4.7% in the GFS Model, primarily because of the largest category, loans. Loans declined by 83 million mainly because unemployment insurance was able to repay federal loans thanks to the good course of business. The ALV loans from the Confederation were reduced by 100 million. Financial derivatives and employee stock options were down sharply on the previous year (-18.1%, or 127 mn). In contrast, other accounts payable rose by 5.9%. On the assets side, the social security funds had financial assets of 41.6 billion and non-financial assets of 197 million. The disparity between non-financial and financial assets was attributable to the fact that most financial assets are interest-bearing investments of the old-age and survivors insurance fund. 97

100 04 The GFS Model Statement of non-financial transactions Social security funds CHF Revenue Taxes Social contributions Grants Other revenue Expense Compensation of employees Use of goods and services Consumption of fixed capital Interest Subsidies Grants Social benefits Other expense Net operating balance Net acquisition: non-financial assets Acquisition: non-financial assets Disposal: non-financial assets CFC: non-financial assets Net lending/borrowing Balance sheet Social security funds CHF Non-financial assets Financial assets Liabilities Net worth

101 04 The GFS Model Expenditure by government function Social security funds CHF Total General public services Executive and legislative organs, financial and fiscal affairs, external affairs Foreign economic aid General services Basic research R&D general public services General public services n.e.c. Public debt transactions Transfers of a general nature between different levels of government Social protection Sickness and disability Old age Survivors Family and children Unemployment Housing Social exclusion n.e.c. R&D social protection Social protection n.e.c Figure 16: Expenditure by government function social security funds, 2016 Total expenditure: CHF General services 0.1% Social protection n.e.c. 2.9% Public debt transactions 0.1% Unemployment 11.8% Sickness and disability 15.1% Family and children 0.6% Survivors 3.1% Old age 66.3% The sum of expenditure for the two functional groups "Old age" and "Survivors" was up by 1.9% on That percentage in crease was the same as the rise in the total number of recipients of old-age and survivors' insurance main, supplementary and survivors' pensions. 99

102 04 The GFS Model 46 Indicators Both the analysis of the repercussions of economic fluctuations on government finances and international comparisons are based on economic data. These fiscal policy yardsticks are calculated in accordance with the Government Finance Statistics Manual 2014 of the IMF. An exception in this respect is the debt ratio, which is calculated in accordance with the Maastricht definition of the European Union. Although the gross debt of Switzerland s government units rose sharply in the 1990s, the level of debt has been brought down since 2003 thanks to greater budget discipline (debt brakes and fiscal rules) and economic growth. At the end of 2016, the Maastricht debt ratio stood at 29% of nominal GDP, which was 2 percentage points above the 1990 low, but still substantially below the Maastricht debt ceiling of 60%. The Confederation s debt ratio continued to decline. Although the cantons debt ratio changed only marginally relative to 2015, it has been on an upward trend since its low of It amounted to 8.4% of nominal GDP in The municipalities debt ratio has been fluctuating between 6.5% and 6.8% since 2007, and was 6.7% in Maastricht debt includes the liability items currency and deposits (GFS item 6302), debt securities (6303) and loans (6304). Other accounts payable are not included. The valuation of Maastricht debt is undertaken at nominal values. Unlike the debt ratio in accordance with the Maastricht definition, the gross debt ratio encompasses virtually all borrowing only financial derivatives are not taken into account. Moreover, the valuation is undertaken according to the true and fair view principle, which means that market prices are used whenever these are available. Debt capital at fair value as a percentage of GDP is a key yardstick in the OECD statistics too. Because debt is a subset of liabilities in the GFS Model, the gross debt ratio is consistently higher than the Maastricht debt ratio. The gross debt ratio amounted to 34.3% in 1990 and reached a peak of 59.1% in Thanks to high surpluses, the ratio of the government units declined steadily from 2004 to 2010, at which point it stood at 42.5%. Since the interim high at the end of 2012 (43.7%), it has declined again. It fell by 1.2 percentage points relative to 2015, due mainly to reduced debt securities (Confederation bonds), and amounted to 41.8% at the end of The deficit/surplus ratio of the general government sector improved thanks to the surpluses of the Confederation, cantons and social security funds sub-sectors. It was +0.4% of nominal GDP at the end of The social security funds positive net lending/borrowing was attributable to the reforms and measures taken. Disability insurance benefited from relief measures from the Confederation as well as additional value added tax receipts from 2011 to The year-on-year improvement in net lending/borrowing recorded by the municipalities sub-sector also contributed to the general government sector s good financial situation in While the cantons posted a deficit of around 2 billion in 2014, they had a surplus of around 0.9 billion in 2016 thanks to significantly higher taxes. The municipalities slightly smaller deficit relative to the previous year can be explained primarily by higher tax receipts. The increase in tax receipts posted by the municipalities and cantons is also reflected in their tax-to-gdp ratios, each of which was up by 0.1 percentage points relative to The Confederation s tax-to-gdp ratio came to 9.8% of nominal GDP in 2016, which was 0.1 percentage points lower than the preceding year. Overall, the tax-to-gdp ratio of the general government sector rose from 27.6% to 27.8%. The general government expenditure ratio rose too, and amounted to 33% of nominal GDP in While the expenditure ratios of the cantons and municipalities remained constant, those of the Confederation and social security funds sub-sectors grew by 0.1 percentage points each. The Confederation s expenditure was up in the Economic affairs (transportation), Social protection (especially social exclusion n.e.c.) and Defense divisions. 100

103 04 The GFS Model Indicators with the GFS Model Debt ratio Confederation 16.8% 16.4% 15.8% 15.0% 14.0% Cantons 7.3% 7.5% 8.3% 8.4% 8.4% Municipalities 6.5% 6.6% 6.7% 6.8% 6.7% Social security funds 1.0% 0.7% 0.6% 0.4% 0.4% General government 30.6% 30.3% 30.6% 30.0% 29.0% Gross debt ratio Confederation 21.8% 20.7% 21.0% 20.9% 19.8% Cantons 11.7% 12.1% 12.1% 12.2% 12.5% Municipalities 10.2% 10.2% 9.9% 10.0% 9.7% Social security funds 1.0% 0.8% 0.7% 0.5% 0.5% General government 43.7% 42.9% 43.0% 43.0% 41.8% Deficit/surplus ratio Confederation 0.2% 0.1% 0.0% 0.4% 0.1% Cantons -0.1% -0.7% -0.3% 0.1% 0.1% Municipalities -0.1% -0.2% -0.2% -0.1% 0.0% Social security funds 0.5% 0.3% 0.3% 0.3% 0.1% General government 0.4% -0.4% -0.2% 0.6% 0.4% Tax-to-GDP ratio Confederation 9.5% 9.6% 9.4% 9.9% 9.8% Cantons 6.7% 6.7% 6.7% 6.8% 7.0% Municipalities 4.1% 4.1% 4.1% 4.2% 4.3% Social security funds 6.7% 6.7% 6.6% 6.7% 6.7% General government 27.0% 27.1% 26.9% 27.6% 27.8% Expenditure ratio Confederation 10.3% 10.5% 10.4% 10.6% 10.7% Cantons 13.3% 13.9% 13.5% 13.6% 13.5% Municipalities 7.1% 7.1% 7.2% 7.1% 7.1% Social security funds 9.0% 9.1% 9.1% 9.2% 9.3% General government 32.2% 33.1% 32.7% 32.8% 33.0% 101

104 04 The GFS Model Figure 17: Tax-to-GDP ratio and general government expenditure ratio trends with the GFS Model in % of GDP General government expenditure ratio Tax-to-GDP ratio After rising in the 1990s, the general government tax-to-gdp ratio has been stable at between 26% and 28% of GDP since the turn of the millennium. In 2016, it amounted to 27.8% of GDP, which was 0.2 percentage points higher than the previous year. Figure 18: Trends of the IMF gross debt ratio and the Maastricht debt ratio in % of GDP IMF debt Maastricht debt The IMF gross debt ratio is subject to significantly greater fluctuations than the Maastricht debt ratio, where debt is included at face value. Moreover, the gross debt ratio includes additional items. However, the trend of the two ratios is similar. 102

105 05 METHODOLOGICAL FOUNDATIONS The following sections give an overview of the main methodological concepts and how they are backed up internationally. More detailed information on the methodology is available on the website of the Federal Finance Administration Changes and revisions The Financial Statistics Section of the Federal Finance Administration (FFA) has been publishing data and indicators in accordance with the current financial statistics guidelines of the International Monetary Fund (IMF) since September 24, With the adoption of the guidelines from the Government Finance Statistics Manual 2014 (GFSM 2014), the first phase of the methodological reconciliation with the system of national accounts 2 was completed. The second phase was completed with the data publication of September 7, The objective of showing uniform economic indicators for government finances was thus achieved. The reconciliation covered balance sheet stocks and non-financial transactions in the operating statement and transactions in non-financial assets. Only financial transactions in financial assets and liabilities were not covered. Their reconciliation is still pending and they were not previously published in the GFS Model. Since the last revision in 2017, the differences between the GFS Model and Switzerland s system of national accounts for the general government sector are limited to the different views chosen for presenting the results and the consolidation scope. The GFS Model presents the financial statistics from the viewpoint of fiscal analysis and policy, whereas the system of national accounts focuses on production (added value). While all transactions between government units are fully consolidated with the GFS Model, the system of national accounts has only partial consolidation. Production-related intermediate consumption and intermediate production between government units are not consolidated in the system of national accounts. Primarily the compensation shown in the national FS Model of financial statistics is concerned here in Switzerland. The partial consolidation with the system of national accounts results in general government expenditure and receipts being increased by the same amount relative to the GFS Model, i.e. by just over 3% each. This has no impact on the general government s deficit/surplus ratio. The general government expenditure ratio turns out to be an average of 1% of nominal gross domestic product (GDP) too high in the system of national accounts as a result. The tax-to-gdp ratio is not affected, as taxes and contributions to social security funds are not covered by consolidation. Future publications of the GFS Model of financial statistics will be based on the following revision policy: Ongoing revisions Provisional figures on the previous year are published at the end of August/start of September, and the two preceding years are revised. An update is available at the end of February/start of March the following year, as that is when the cantons are fully captured for two years earlier. Comprehensive revisions Experience has shown that methodology changes (e.g. changes to reference works for financial statistics such as the GFSM or the SNA, basic data changes) are made every five to ten years. The full time series are always revised in such cases. 1 See > Topics > Financial statistics > Methods 2 The system of national accounts is based on the European System of Accounts (ESA 2010), which is compatible with the GFSM Both the ESA 2010 and the GFSM 2014 are based on the standard reference work for national accounts, the System of National Accounts (SNA 2008) of the international organizations (UNO, OECD, IMF, World Bank, European Commission). 103

106 05 Methodological foundations 511 Changes in the national FS Model New federal recording from 2007 In 2007, the Confederation introduced the new accounting model (NAM), which is based on the International Public Sector Accounting Standards (IPSAS 1 ). Since the introduction of the NAM, the Confederation s accounting has been carried out according to business criteria. The introduction of new accounting standards often leads to certain series breaks in the time series of the financial statements affected. In the financial statistics, however, the Confederation did not start to be recorded in line with the NAM until , in contrast, was still recorded in accordance with the principles of the old accounting standards which were in force until However, the Confederation s 2008 financial statements are special primarily because of the new system of fiscal equalization and the division of tasks between the Confederation and the cantons (NFE). In 2008, therefore, there can be significant series breaks in the affected task areas (e.g. responsibility for motorways went from the cantons to the Confederation). To ensure that the politically desired shifts and the ensuing series breaks do not overlap with any breaks caused by the introduction of the NAM, the Financial Statistics Section also used the NAM for the Confederation for fiscal 2007 as part of the 2017 revision. 512 Changes in the international GFS Model The changes in connection with the reconciliation with the system of national accounts concern non-financial transactions and balance sheet stocks with the GFS Model. External time series which flow into the GFS Model instead of the information from the government units financial statements recorded in the FS Model likewise trigger changes in general government indicators, e.g. the deficit/surplus ratio or the general government expenditure ratio, as well as methodological adjustments to them (e.g. gross debt ratio). With the exception of capital contributions to under-funded public-sector pensions funds, it is worth mentioning in the interests of completeness that most of the external data adopted in the GFS Model of financial statistics serves simply to refine the basic information contained in the national FS Model and does not affect the indicators determined for the general government sector. Balance sheet items (stocks) Municipalities statements of financial position for 1990 to 2007 As part of the 2017 revision, an extrapolation was carried out for the municipalities statements of financial position for 1990 to Consequently, the balance sheet stocks for the municipalities and the general government sector have since been shown from 1990 in the GFS Model of financial statistics, and not just from 2008 as was the case before the revision. Gross debt in accordance with Maastricht definition Before the 2017 revision, the Financial Statistics Section published gross debt with reference to the Maastricht definition. This calculation was carried out in the national FS Model and was based on the definition of the HAM2 for the cantons and municipalities. In the financial statistics, debt is now determined at face value in accordance with the Maastricht definition based on the international GFS Model (currency and deposits, debt securities and loans). Some current liabilities under the FS Model (e.g. current liabilities on trade accounts payable or advance payments received) which are part of gross debt in accordance with the HAM2 are allocated to other accounts pay able under the GFS Model, which are not part of Maastricht debt. Consequently, Switzerland s debt ratio is an average of 2.8% of GDP lower. Provisions The accounting standards of the Confederation (NAM) and of the cantons and municipalities (HAM2) are based on the IPSAS or refer to them. The IPSAS are public sector accounting standards that follow business principles. A true and fair view of the public sector s assets, financial position and financial performance should be derived with accrual accounting and correct valuations of assets and liabilities. The principles underlying the IPSAS are compatible with the GFSM 2014 and ESA 2010 financial statistics standards. Therefore, the Financial Statistics Section previously adopted the provisions 2 created by the government units in accordance with the IPSAS in the GFS Model s balance sheet. Provisions are unilateral actions without a counterparty. In the system of national accounts, however, each liability has to have a counterparty with a corresponding receivable, and vice versa. Given that no counterparty with a corresponding receivable exists in the case of provisions formed unilaterally by government units, provisions are no longer adopted in the GFS Model s balance sheet with the 2017 revision. Naturally, this also means that the flows pertaining to provisions (deposits in and withdrawals from provisions) are no longer recorded as transactions in the GFS Model either. 1 The IPSAS are accounting standards that should be used by publicsector entities in accordance with the recommendations of the IPSAS Board ( 2 Such provisions concern liabilities arising from past events that have a high likelihood of occurrence and the extent of which can be calculated. Consequently, they are not provisions created solely based on the prudence principle. 104

107 05 Methodological foundations One result of this change of practice is that the gross debt ratio (IMF debt ratio) is an average of 1.8% of GDP lower from This is largely attributable to the federal withholding tax provision that is no longer taken into consideration. This provision has been shown in the Confederation s state financial statements since the NAM was introduced in Transactions (flows) in the operating statement and transactions in non-financial assets Tax revenue Tax revenue is an average of 0.9% higher than before the 2017 revision. When the first stage of the reconciliation with the system of national accounts was completed on September 24, 2016, the FFA adopted the FSO s then procedure for cantonal and municipal capital transfer tax. This was based on an estimate of the shares of real estate transfer tax, classified as a fee rather than as a tax. This procedure was corrected with the 2017 revision, as most of the real estate transfer tax is actually tax and not fees. This change of practice resulted in a shift from other revenue (GFS item 14) to taxes (GFS item 11). The tax revenue process change from 2007 is due to the above-mentioned change of practice for provisions. Among other things, deposits in and withdrawals from the withholding tax provision are no longer recorded as tax revenue. Capital contributions to under-funded public-sector pensions funds In the case of the Confederation, the funding of public-sector pension funds was primarily off balance sheet before the introduction of the NAM and thus before These capital contributions were not shown in the Confederation s then financing statement, which formed the basis for the financial statistics and thus the national FS Model. As the national FS Model forms the basic statistics for the international GFS Model, these capital contributions were not shown in the GFS Model either. With the 2017 revision, the Confederation s capital contributions to under-funded public-sector pension funds were determined insofar as possible with the statement of financial position and the very rudimentary statement of financial performance, and adopted in the GFS Model. In the case of the cantons and municipalities, accrual accounting was established as a standard already before the HAM2 was introduced. However, the funding of public-sector pension funds in the case of the cantons and municipalities is usually through the formation of a provision in favor of the affected pension fund as soon as the need for funding is identified and the amount of the associated liability can be estimated. The statements of financial performance then show the deposits and withdrawals linked to this provision. They are recorded as flows in connection with the funding of the pension fund in the FS Model. For the most part, these deposits and withdrawals are purely accounting-related flows; the actual flows of money from the government unit to the pension fund are rarely visible in the statements of financial performance. As the formation of a provision is a unilateral action without a counterparty on the part of a government unit, the associated stocks and flows for the designated counterparty, the underfinanced public-sector pension fund, do not appear as a receivable in the fund s statement of financial position or as a capital contribution in its statement of financial performance. The capital contributions accompanying funding generally appear in pension funds financial statements when the actual flow of funds takes place. Consequently, effective from the 2017 revision, pension funds financial statements, and thus the FS Model, no longer serve as a source for the accompanying stocks and flows for the funding of under-funded pension funds by cantons and municipalities. In the GFS Model, the financial statistics have since been based on the FSO occupational pension plan statistics processed with the system of national accounts in order to portray the liabilities and capital contributions of the cantons and municipalities in connection with under-funded public-sector pension funds. Consumption of fixed capital (depreciation) Aside from stocks and flows in connection with the funding of under-funded public-sector pension funds by cantons and municipalities, other items are also adopted from external sources, and thus not from the government units financial statements portrayed with the FS Model. With regard to this category of data, it is worth referring to the important consumption of fixed capital (GFS item 23). This concerns the depreciation of the government units capital stock. The FSO determines the depreciation using the perpetual inventory method (PIM), and it is adopted by the Financial Statistics Section in the GFS Model instead of depreciation in the national FS Model. 105

108 05 Methodological foundations 52 International standards for financial statistics and accounting The Government Finance Statistics Manual (GFSM 2014) of the International Monetary Fund (IMF) forms the foundation for financial statistics in accordance with international guidelines. Both the IMF s current Government Finance Statistics Manual (GFSM 2014) and the European System of Accounts (ESA 2010) are based on the UN s current System of National Accounts (SNA 2008), which is the reference work for economic and financial statistics. There is thus a high degree of compatibility between the GFSM 2014 and the ESA The financial statistics are based on the financial accounting of the government units and the institutions under their control (corporations, institutions, separate accounts, funds, etc.). The GFSM 2014 forms the methodological foundation for the international GFS Model. Like with the International Public Sector Accounting Standards (IPSAS), the principles of accrual accounting and the true and fair view principle also apply for financial reporting on government units in accordance with the GFSM However, whereas the IPSAS focus more on the business or individual economic units (i.e. management orientation and control), the GFSM, as a standard for summary statistics, emphasizes the macroeconomic view and the international comparability of the general government sector. Fundamentally, they share the same requirements and the same objective: to present an understandable and transparent picture of the government s revenue, financing and asset situation. The GFSM can thus be combined with the Confederation s accounting model (NAM) and with the Harmonized Accounting Model for the Cantons and Municipalities (HAM2), which are also fundamentally based on the IPSAS. Drawing from this institutional environment, the tasks of the Swiss financial statistics can be described as follows: 1. Consolidated and harmonized financial reporting of the Confederation, cantons, municipalities and social security funds on the basis of the accounting models of the Confederation (NAM) and of the cantons and the municipalities (HAM2) with the objective of national comparability 2. Production and reporting of internationally comparable statistics on Switzerland s public finances in accordance with the GFSM 2014 These tasks are carried out using two Swiss financial statistics models: 1. FS Model: Data collection, compilation, processing, evaluation, reporting and analysis on the basis of the HAM2 and the NAM 2. GFS Model: Data processing, evaluation, reporting and analysis on the basis of the GFSM 2014 issued by the IMF Comments on Switzerland s financing statement (system of national accounts/snb): Switzerland s financing statement is published by the Swiss National Bank (SNB). It contains the financial assets and liabilities as per the 2010 version of the European System of Accounts (ESA 2010). The FFA s national government finance statistics were overhauled in a first phase (in 2016) and include not only data based on the national accounting model, but also data based on the IMF s Government Finance Statistics Manual (GFSM 2014). The GFSM 2014 is largely consistent with the ESA 2010, which provides the methodological basis for the financing statement and the non-financial part of the system of national accounts. This consistency made it possible to eliminate the differences between the FFA statistics and the financing statement. The harmonization of the general government sector s data in the financing statement and the FFA statistics was completed with the 2017 revision. 106

109 05 Methodological foundations 53 Models The so-called FS Model is used to facilitate comparisons of the government units. By contrast, the data of the GFS Model is used to facilitate international comparisons and allow for data deliveries to the International Monetary Fund. 531 The FS Model In essence, the FS Model is based on the Harmonized Accounting Model for the Cantons and Municipalities (HAM2), although its classification system is more streamlined than the HAM2 chart of accounts for the needs of financial statistics. The latter was supplemented with accounts for unallocated positions from the HAM1 and Confederation-specific items from the accounting model of the Confederation (NAM). The FS Model serves as a basis for data collection and processing. In an initial stage, all financial data of the government units is scanned or manually entered into the FS Model. This is the model in which statistical operations (sectoring, harmonization and consolidation) are undertaken for the various levels of government. The FS Model forms the basis for the reporting of Switzerland s public finances. Statement of financial performance The statement of financial performance shows the balance between the value increase (revenue) and the consumption or use of resources (expenses) during a given accounting period. In addition to the current expenditure and receipts with financing effect, resulting in a direct inflow or outflow of funds, the statement of financial performance also includes transactions with no financing effect, such as depreciation and value adjustments. The statement of financial performance is presented in two stages: the first stage shows the ordinary result, the second stage the extraordinary result. The ordinary result can be subdivided into the operating result and the financial result. The operating result comprises revenue and expenses occurring as a result of the performance of public tasks. The financial result consists of interest receivable and payable as well as the revenue and expenses associated with managing non-administrative assets. Revenue and expenses are classified as extraordinary if they could not have been foreseen and they are beyond the scope of influence and control and do not fall under operations. Financing statement The financing statement shows the extent to which a government unit s expenditure is financed with corresponding receipts from the same accounting period. Investment expenditure and receipts form part of the financing statement and are summarized in the statement of investments. The balance of the statement of investments is termed net investments in the tables. A negative balance in the statement of investments (an overhang of investment expenditure) has the character of an investment, whereas a positive balance is to be equated with divestment. The financing statement forms the main steering instrument for the overall steering of fiscal policy. For administrative and operational management, however, the performance approach is used, like in the private sector. Statement of financial position The statement of financial position gives an overview of the asset and capital structure. Following standard practice in government units, assets are divided into non-administrative and administrative assets for credit-granting reasons. Non-administrative assets encompass those assets that can be sold without any effect on the performance of public tasks. Administrative assets are earmarked for the direct performance of tasks or a purpose specified by public law. Liabilities are broken down into debt and equity, whereby an accumulated deficit is posted as negative equity. Gross debt Based on the Harmonized Accounting Model for the Cantons and Municipalities (HAM2), gross debt is defined as the sum of current liabilities, short-term and long-term financial liabilities and liabilities toward government units less investment contributions posted as liabilities and less derivative financial instruments posted under these items. This definition has changed since the one in the original handbook on accounting for government units (HAM1). Financial ratios Primarily the following financial ratios are used for assessing the financial situation of the government units. 107

110 05 Methodological foundations Financial ratios Indicator Definition Significance Benchmark Net indebtedness ratio Net debt I in % of tax revenue; Liabilities Investment contributions posted as liabilities Non-administrative assets = Net debt I Proportion of tax revenue required to reduce net debt < 100% good % sufficient > 150% poor Self-financing ratio Self-financing in % of net investments; Surplus/deficit + Depreciation of administrative assets (AA) + Value adjustments on loans, AA + Value adjustments on financial interests, AA + Depreciation of investment contributions Dissolution of investment contributions posted as liabilities Revaluations, AA + Net expense for funds and special financing Withdrawals from funds and special financing + Additional depreciation + Additional depreciation on transfers Additional dissolution of investment contributions posted as liabilities + Net expense for net assets/equity Withdrawals from net assets/equity = Self-financing; + Tangible fixed assets + Investments on behalf of third parties + Investments, intangible fixed assets + Loans and financial interests n.e.c. + Loans + Financial interests and share capital + Own investment contributions (shown under investment contributions in FS Model) + Investment contributions (own and transitory) + Extraordinary investment expenditure = Gross investment; Transfer of tangible fixed assets to non-administrative assets Reimbursements Disposal of intangible fixed assets Repayment of loans and financial interests n.e.c. Repayment of loans Transfer of financial interests Repayment of own investment contributions (shown under repayment of investment contributions in FS Model) Repayment of investment contributions (own and transitory) Extraordinary investment receipts = Investment receipts; Gross investment Investment receipts = Net investments Proportion of net investments that can be financed with own funds Depending on the economic situation: > 100% boom % normal 50 80% downturn Medium-term average around 100% 108

111 05 Methodological foundations Financial ratios Indicator Definition Significance Benchmark Interest burden ratio Net interest expense in % of current revenue; + Interest expense Interest income = Net interest expense + Tax revenue + Royalties and concessions + Revenue from exchange transactions + Miscellaneous revenue + Financial revenue + Withdrawals from funds and special financing + Transfers, revenue + Extraordinary revenue + Withdrawals from restatement reserve + Additional dissolution of investment contributions posted as liabilities (not in FS Model) Withdrawals from net assets/equity = Current revenue Proportion of disposable income linked to the payment of interest 0 4% good 4 9% sufficient > 9% poor Proportion of gross debt Gross debt in % of current revenue; + Current liabilities + Short-term financial liabilities + Long-term financial liabilities + Liabilities toward government units Derivative financial instruments Investment contributions posted as liabilities = Gross debt Assesses the debt situation and explores whether the proportion of debt is reasonable relative to the revenue generated < 50% very good % good % average % poor > 200% critical Proportion of investment Gross investment in % of total expenditure; + Personnel expenditure + General, administrative and operating expenditure + Defense expenditure + Transfer expenditure + Extraordinary expenditure = Current expenditure Current expenditure + Gross investment (see self-financing ratio for calculation) = Total expenditure Shows activity in terms of investments < 10% weak investing activity 10 20% average investing activity 20 30% strong investing activity > 30% very strong investing activity Proportion of debt servicing Debt servicing in % of current revenue; + Depreciation, administrative assets + Interest expense + Value adjustments on loans, AA + Value adjustments on financial interests, AA + Depreciation of investment contributions Interest income Dissolution of investment contributions posted as liabilities = Debt servicing Measures the burden placed < 5% low burden on budgets by costs of capital. 5 15% sustainable burden The indicator provides information on how heavy a burden is placed on current revenue by public debt transactions and depreciation (= debt servicing). A high proportion indicates declining financial leeway. > 15% high burden Proportion of self-financing Self-financing in % of current revenue Shows the proportion of government units revenue that can be used to finance their investments > 20% good 10 20% average < 10% poor 109

112 05 Methodological foundations 532 The GFS Model To facilitate international comparisons of government finances and allow for data deliveries to the International Monetary Fund (IMF), the financial statistics are also compiled according to the GFS Model. This is based on the IMF s Government Finance Statistics Manual 2014 (GFSM 2014), with some minor adjustments made to reflect Swiss circumstances. Like the International Public Sector Accounting Standards (IPSAS), the GFSM 2014 is a standard for the financial reporting of government units. Unlike the IPSAS, which focus more on the individual business or economic units (i.e. management orientation and control), the GFSM 2014, as a standard for summary statistics, emphasizes the macroeconomic view and international comparability. The accounting data of the Confederation (parent entity and separate accounts) and of the individual social security funds is entered directly in the GFS Model, but that of the cantons and municipalities is taken from the FS Model and mapped automatically. In order for the data to satisfy the quality requirements and guidelines of the GFSM 2014 (as well as the ESA 2010), certain statistical GFS operations are necessary. These GFS operations are performed using external information sources and/or based on an economic evaluation of business transactions that corresponds to the GFSM 2014 standard. The GFS operations are carried out only at the higher aggregate levels, i.e. the Confederation, cantons, municipalities and social security funds sub-sectors. The data is then available for evaluation and reporting purposes. In principle, the GFS Model like the FS Model posts all transactions and indicators on an accrual basis. Nonetheless, there are also some differences compared with the accounting models of the Confederation, the cantons and municipalities and the social security funds. The term balance sheet is used in the GFS Model instead of the term statement of financial position. The concepts of revenue and expense are more narrowly defined than in the FS Model. Moreover, the GFS Model does not involve any breakdown into ordinary and extraordinary results. Instead, a distinction is made between transactions and other economic flows. While the net operating balance and net lending/borrowing are derived from transactions and can be controlled by fiscal policy, unanticipated events and changes in the value of stocks are considered as other economic flows. These are beyond policy control. The following illustrations show how the GFS Model is classified and structured. In order to understand the interrelationships between the components shown in the Model structure with the GFS Model, the figure should be read from top to bottom. Balance sheet On the assets side, the GFS Model does not make a distinction between non-administrative and administrative assets like the FS Model, and instead distinguishes between non-financial assets (GFS item 61) and financial assets (62). Non-financial assets comprise fixed assets, inventories, valuables and nonproduced assets such as land and natural resources. However, loans and Figure 19: Classification in accordance with the GFSM 2014 Classification Heading Code Balance sheet Non-financial assets 61 Financial assets 62 Liabilities 63 Net worth 69 Transactions Revenue 1 Expense 2 in non-financial assets 31 Acquisitions 31.1 Disposals 31.2 Consumption of fixed capital 31.3 in financial assets 32 in liabilities 33 Other economic flows in non-financial assets 91 in financial assets 92 in liabilities

113 05 Methodological foundations Figure 20: Model structure with the GFS Model Stocks at beginning Flows Stocks at end Balance sheet Transactions Other economic flows Balance sheet 1 Revenue - 2 Expense = 69 Net worth Net operating balance Balance of other economic flows 69 Net worth = = = = 61 Non-financial assets 31 Net acquisition of 91 Net flows of + non-financial assets + non-financial assets = 61 Non-financial assets Change in Net financial assets Net lending/borrowing net financial assets from other Net financial assets economic flows = = = = 62 Financial assets 63 Liabilities 32 Net acquisition of financial assets - 33 Net incurrence of liabilities 92 Net flows of financial assets - 93 Net flows of liabilities 62 Financial assets Liabilities securities are fully recorded under financial assets even if they are classified as non-administrative or administrative assets in the general government financial statements. In principle, liabilities (63) correspond to debt capital in the FS Model, with possibly a different definition for certain items. In general, both assets and liabilities are to be recorded in accordance with the principle of a true and fair view. This means, for instance, that fair values are given for the financial assets and liabilities in negotiable stocks. Net worth Instead of the FS Model s net assets/equity, the GFS Model shows net worth (69). This is the sum of financial assets (61) and nonfinancial assets (62) less liabilities (63). Debt Different debt ratios are calculated in the international GFS Model and ESA, i.e. the debt ratio in accordance with the IMF and in accordance with the Maastricht definition. The IMF debt ratio expresses the gross debt in the GFS Model as a percentage of GDP. Gross debt includes all liabilities (GFS item 63) less equity and investment fund shares (6305) and less financial derivatives (6307). Negotiable liabilities are recognized at fair value. In the case of Maastricht debt according to the EU s definition, individual components have to be included at nominal value. This ratio includes the items currency and deposits (ESA item AF.2 / GFS item 6302), debt securities (AF.3 / 6303) and loans (AF.4 / 6304). Financial derivatives, trade credits and other accounts payable, for example, are not included. Maastricht debt is more narrowly defined than gross debt in accordance with the FS Model. For example, current liabilities on trade accounts payable or advance payments received are not part of Maastricht debt. Transactions Transactions are itemized and reported separately in accordance with the GFSM A distinction is made between nonfinancial and financial transactions. The former refer to the operating statement and transactions in non-financial assets, and the latter to financial assets and liabilities. With the Swiss GFS Model, however, only non-financial transactions can be itemized, as the corresponding data for financial transactions cannot be determined from the individual financial statements of the Confederation, the cantons, the municipalities and the social security funds. They are thus calculated as a whole based on the changes in the balance sheet. 111

114 05 Methodological foundations Transactions in non-financial assets Transactions in non-financial assets are shown in the GFS Model instead of a statement of investments (FS Model). However, as the name suggests, these include only transactions in non- financial assets. The result is the net acquisition of non-financial assets. This includes the acquisition less disposal of non- financial assets, less the consumption of fixed capital 1. This consumption of fixed capital corresponds only to planned depreciation in the FS Model. Unplanned depreciation under the FS Model is recognized as other economic flows in the GFS Model. In contrast, additional depreciation under the FS Model is not taken into consideration. Government expenditure Government expenditure is the sum of expense and net acquisition of non-financial assets. As the consumption of fixed capital has a plus in expense and a minus in net acquisition of nonfinancial assets, government expenditure does not contain the consumption of fixed capital. Government expenditure in the GFS Model tends to be lower than in the FS Model. This is explained by the fact that there are a number of items that belong to expenditure in the FS Model which are allocated to financial transactions in financial assets and liabilities or other economic flows in the GFS Model. Figure 21: Net acquisition of non-financial assets Net acquisition of non-financial assets + Acquisition of non-financial assets Disposal of non-financial assets Consumption of fixed capital Investment contributions In the GFS Model, investment contributions are recorded in the operating statement as investment grants (capital transfers). However, they are not capitalized in the balance sheet. The main differences here are with the cantons and municipalities, where the FS Model posts investment contributions to the statement of financial position and depreciates them. The Confederation depreciates investment contributions in the FS Model straight away. As investment contributions from the FS Model s statement of financial position are not included in the GFS Model, the associated depreciation is not taken into account in the GFS Model s transactions in non-financial assets. Other economic flows The GFS Model classifies business transactions as either operating transactions or other economic flows. While the former are part of the statement of government operations, can be controlled by fiscal policy and show the net lending/borrowing which is relevant for fiscal policy analyses, other economic flows are booked separately. These flows which cannot be controlled by fiscal policy include changes in carrying amounts or market values ( holding gains or losses ) and exceptional/unexpected additions to or deletions from balance sheet items, e.g. gifts, impairments as a result of environmental disasters, etc. Net operating balance and net lending/borrowing The net operating balance is defined as revenue less expense. When the net acquisition of non-financial assets is subtracted from the net operating balance, what results is net lending/ borrowing. Net lending/borrowing can also be calculated using financial transactions in financial assets and liabilities. In the Swiss GFS Model, however, these can only be determined indirectly via the changes in the corresponding asset items. Figure 22: Government expenditure Government expenditure + Expense + Net acquisition of non-financial assets The nomenclature for government expenditure by function, the Classification of the Functions of Government (COFOG), is published by the United Nations Statistical Division. COFOG is used for structuring government expense and the net acquisition of non-financial assets. The COFOG classification has three levels of detail: divisions, groups and classes. The divisions may be defined as the broad objectives of government. It should be borne in mind, however, that the ten COFOG divisions of General public services, Defense, Public order and safety, Economic affairs, Environmental protection, Housing and community amenities, Health, Recreation, culture and religion, Education and Social protection are not identical to the classification of the task areas in the FS Model. The task area Finances and taxes under the FS Model, for example, is fully mapped to the COFOG division General public services. 533 Nomenclatures In order to produce financial statistics, all variants of the financial statistics models require an economic classification of the chart of accounts and a functional classification of the government s task areas. The economic classification reflects the economic stocks and flows while, in the functional classification, the flows that form government receipts and expenditure are allocated to a task area. The nomenclatures of the models are published on the website of the Federal Finance Administration 2. 1 The term consumption of fixed capital is used in the GFS Model instead of the term depreciation. 2 See downloads at > Topics > Financial statistics > Reporting 112

115 05 Methodological foundations 54 Sectoring The system of national accounts allocates economic units to so-called institutional sectors. This allocation takes place according to a specific decision tree, whereby the process is referred to as sectoring. The general government sector comprises all institutional units classified as public non-market producers whose output is intended for consumption, which primarily finance themselves through compulsory payments (taxes and other levies) made by units belonging to other sectors, and/or which are engaged in the redistribution of national income and wealth. In order to facilitate international comparisons, it is essential to adopt international standards. This is particularly true of the question of the allocation of economic units to sectors. With the reform under the second series of bilateral negotiations, the Financial Statistics Section adjusted the survey population in line with the sectoring guidelines of the European System of Accounts (ESA). The classification of the institutional sectors in accordance with the ESA 2010 is shown in the Institutional sectors figure. Figure 23: Institutional sectors S.1 National economy S.2 Rest of the world S.11 Non-financial corporations Private and public market producers e.g. ABB, Novartis, Nestlé, SBB, Swiss Post, hospitals S.12 Financial corporations Private and public market producers e.g. Swiss Re, UBS, Credit Suisse, cantonal banks, PUBLICA, health insurers S.13 General government Public non-market producers S.14 Households Market producers or private producers for own final use S.15 Non-profit institutions serving households Private non-market producers serving households e.g. churches, trade unions 113

116 05 Methodological foundations The figure shows that government activities can be assigned to different sectors. For example, public market producers these are generally public corporations do not belong to the general government but to non-financial corporations or financial corporations. Therefore, to determine the boundaries for financial statistics, it is important to ask whether a unit can be classified as a market producer or a non-market producer. The breakdown of the general government sector can be seen in the General government sub-sectors figure. Figure 24: General government sub-sectors S.13 General government (government units and social security funds) S.1311 Confederation S.1312 Cantons S.1313 Municipalities S.1314 Social security funds The general government institutional sector is divided into four sub-sectors: the first three follow the federal structure of Switzerland; the fourth sub-sector covers social security funds. 114

117 05 Methodological foundations Allocation to a particular sector generally depends on the type of activity and on who controls the unit. In principle, sectoring is undertaken in line with the Decision tree for allocation to the general government sector figure. Figure 25: Decision tree for allocation to the general government sector Producer No Institutional unit? Yes Government controlled? No Yes Assigned to parent Redistribution of assets and income? Yes General government An economic unit is allocated to No the general government if: (I) it is an institutional unit and Private unit Market producer Yes Financial intermediary? also (II) is government-controlled and either No (III) its main function is the redistribution of income and Market producer Yes Over 50% of production costs covered by sales? No assets or (IV) its main function is not as a financial intermediary and (V) it does not deliver its goods and services at economically significant prices. 115

118 05 Methodological foundations The first step is to decide whether the transactions to be recorded are economic activities of a separate institutional unit. In practice, the existence of a separate set of accounts in particular is of vital importance in financial statistics. A unit will be withdrawn from or included in the parent only if it has or can compile at least a balance sheet and operating account, and preferably also a statement of investments. Furthermore, the issue of business independence is significant. Business independence can be said to exist if the activities in question are performed not within the administration but in the context of a separate operational organization and a separate management board. The second criterion concerns government control. This can refer to the ability to determine the general strategy and business policy of that unit, for example. This is the case if the government owns more than 50% of the voting rights in the company, or exercises de facto control by virtue of a law, ordinance or special status to define the corporate policy and/or appoint company management. In the last case, one of the deciding factors in practice is whether the unit s corporate policy is so heavily influenced by the government that its financial performance can be largely controlled by the government. Basically, all public units have a redistribution function in accordance with the third criterion if services are provided free of charge and/or are financed by obligatory taxes or duties for which the amount and basis of assessment bear no relation to the cost of the individual services used. These are typically services financed by direct or indirect taxes or other deductions, including for example income-dependent social security contributions for old-age and survivors insurance (AHV), disability insurance, compensation for loss of earnings and unemployment insurance. The relevant government benefits should be distinguished from benefits that are partially or fully financed by fees, where the amount of the individual fees paid depends on the individually used government benefits, i.e. there is no redistribution involved. Government-controlled institutional units whose main function involves financial intermediation (criterion IV) are classified as public market producers and as such do not belong to the general government. These units are commercial banks, savings banks and other asset management institutions, insurance corporations, including health insurers, or pension funds. The last criterion (V) basically seeks to determine whether or not a unit s output is produced for the market. According to the ESA 2010, a producer is a market producer if it sells its goods and/ or services at economically significant prices. A price is said to be economically significant if it has a significant influence on supply and demand. However, this theoretical and relatively abstract rule is difficult to implement in practice. A market producer is therefore a unit that covers at least 50% of its production costs with the proceeds of its sales or fees and charges over a sustained multi-year period. 116

119 05 Methodological foundations 55 Consolidation Consolidation is the combination of the financial statements of individual government units to form consolidated financial statements, whereby transfers between the entities to be consolidated are eliminated. In the consolidated results, transfers between the units to be consolidated are eliminated. For instance, if the municipalities of a canton are posted as one unit, all transfers between these municipalities are deducted. This ensures that the consolidated expense and revenue, or consolidated expenditure and receipts, are not overstated by the value of these internal transfers (i.e. double entries). As the accounts of the individual sub-sectors and government units are not uniform and standardized, transactions are often booked differently. The transfers of the individual government units are thus processed when preparing the financial statistics in order to ensure the greatest possible consistency between transfers payable and transfers receivable. Consolidation rules have been defined for this purpose (cf. figure entitled Consolidation rules for financial statistics ). However, this principle need not be observed in certain cases where this makes sense in the interests of obtaining good quality statistics. Unadjusted transfers result in what are known as statistical differences. In the FS Model, such cases occur particularly with the data imported from the legacy financial statistics from 1990 to Figure 26: Consolidation rules for financial statistics Transfers Municipalities municipalities Cantons municipalities / Municipalities cantons Cantons cantons Social security funds social security funds Confederation cantons / Confederation municipalities Confederation social security funds Cantons social security funds Municipalities social security funds Consolidation rule Basis for consolidation: Receipts Correction and equalization: Expenditure Basis for consolidation: Data from the canton Correction and equalization: Municipalities Basis for consolidation: Receipts Correction and equalization: Expenditure Exception: In the cantons horizontal fiscal equalization, the cantonal data is adapted to the accrual-based values in accordance with the ordinance per accounting year Basis for consolidation: Receipts Correction and equalization: Expenditure Basis for consolidation: Confederation Correction and equalization: Cantons and municipalities Basis for consolidation: Confederation Correction and equalization: Social security funds Basis for consolidation: Social security funds Correction and equalization: Cantons Basis for consolidation: Social security funds Correction and equalization: Municipalities 117

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121 06 GLOSSARY Term Administrative assets Assets Balance sheet (GFS Model) Consolidation Consumption of fixed capital Debt Debt ratio Deficit/surplus ratio Expenditure Expense Financial result Financial statistics Financing statement General government expenditure ratio Government expenditure Gross debt Gross debt ratio Definition Administrative assets in the FS Model are those assets that are directly used in the performance of public tasks and which cannot be sold without having an impact on such tasks. Assets form part of the balance sheet/statement of financial position and indicate how resources have been used. The order of the individual items on the assets side mostly corresponds to their liquidity. In the FS Model, assets are broken down into non-administrative and administrative assets. The GFS Model distinguishes between non-financial and financial assets. The balance sheet informs about the use of funds (assets) and the source of funds (liabilities) at a specific point in time. Corresponds to the statement of financial position in the FS Model. Consolidation is the combination and adjustment of individual financial statements of several entities to form what are known as consolidated financial statements. For consolidated results, transfers between entities to be consolidated are eliminated. This ensures that the consolidated expenditure and receipts are not overstated by the value of these "internal" transfers (double entries). Planned depreciation in the GFS Model is the consumption of fixed capital over a specific period as a result of wear and tear, i.e. at the end of the fixed asset's service life. However, there is no consumption of fixed capital in the case of inventories, valuables and nonproduced assets. The FS Model also includes unplanned (and any additional) forms of depreciation. In the FS Model, gross debt is with reference to the Harmonized Accounting Model for the Cantons and Municipalities (HAM2). It is defined as the sum of current liabilities, short-term and long-term financial liabilities and liabilities toward government units less derivative financial instruments and less investment contributions posted as liabilities. Debt in accordance with the Maastricht definition is used for comparisons with European countries. In the GFS Model, this is comprised of currency and deposits, debt instruments and loans. However, these items are valued at nominal values in accordance with the Maastricht definition and not at fair value. The definition of Maastricht debt is slightly narrower than gross debt in accordance with the HAM2. Some current liabilities under the FS Model (e.g. current liabilities on trade accounts payable or advance payments received) which are part of gross debt in accordance with the HAM2 are allocated to other accounts payable under the GFS Model, which are not part of Maastricht debt. The debt ratio shows the relationship between the consolidated debt of the general government sector and nominal gross domestic product (GDP). The debt ratio in accordance with the Maastricht definition is used for comparisons with European countries. The ratio of the International Monetary Fund (see gross debt ratio) is used at global level. The deficit/surplus ratio for the general government corresponds to net lending/borrowing in the GFS Model as a percentage of GDP. Expenditure is defined as the use of non-administrative assets (FS Model) or financial assets (GFS Model) to fulfill a public task. It requires a legal framework and a credit. Expense is a monetary valuation of the goods and services used or consumed during a given accounting period. The GFS Model includes the consumption of fixed capital (planned economic depreciation) in addition to expenditure with financing effect. The FS Model also includes unplanned depreciation and value adjustments as well as other processes with no financing effect, such as net expense for special financing. The financial result in the FS Model comprises financial revenue less financial expense. Financial statistics are summary statistics that place on a comparable basis the statements of the income, financing and asset situation of government units (the Confederation, cantons, municipalities and social security funds) as well as the structure of their tasks, classified by task area. They serve as a basis for deriving macroeconomic indicators such as the general government expenditure ratio, deficit/surplus ratio, tax-to-gdp ratio and debt ratio. The financing statement is used to calculate the entire financing requirements, which result from the difference between expenditure and receipts. It thus discloses all payment transactions for an accounting year resulting from the performance of tasks. The general government expenditure ratio denotes total government expenditure in the GFS Model as a percentage of GDP. Government expenditure in the GFS Model results from the sum of expense and net acquisition of non-financial assets of the general government. In general, debt comprises payment obligations that are a legal requirement. The gross debt ratio equals the gross debt in the GFS Model (liabilities less financial derivatives) as a percentage of GDP. It corresponds to the debt ratio in accordance with the definition of the International Monetary Fund (IMF). 119

122 06 Glossary Term Interest burden ratio Liabilities and equity Net acquisition of non-financial assets Net assets/equity Net debt I Net indebtedness ratio Net lending/borrowing Non-administrative assets Operating result Ordinary result Receipts Revenue Revenue from exchange transactions Sectoring Self-financing Statement of financial performance Statement of financial position (FS Model) Tax revenue Tax-to-GDP ratio Transactions in non-financial assets Transfers Definition The interest burden ratio in the FS Model indicates what proportion of current revenue is linked to the payment of interest. Liabilities are on the right-hand side of the balance sheet/statement of financial position. They indicate how funds were procured. They are divided into liabilities and net assets/equity in the FS Model, and into gross debt and net worth in the GFS Model. The net acquisition of non-financial assets in the GFS Model corresponds to the acquisition less disposal of non-financial assets, less the consumption of fixed capital. Net assets/equity in the FS Model is the difference between assets and liabilities. Net debt I is calculated in the FS Model as liabilities minus investment contributions posted as liabilities minus non-administrative assets. This variable is used to determine the debt or assets of a public body. It shows, among other things, how sensitive a public body is to interest rate fluctuations. The net indebtedness ratio in the FS Model shows which proportion or how many annual installments of tax revenue are needed to pay off the net debt. Net lending/borrowing in the GFS Model corresponds to the net operating balance less the net acquisition of non-financial assets. Net lending/borrowing is also equal to the net result of transactions in financial assets and liabilities. In the Swiss GFS Model, however, these can only be determined indirectly via the changes in the corresponding balance sheet items. In macroeconomic terms, this is the difference between government receipts and government expenditure. Non-administrative assets in the FS Model encompass those assets that can be sold without any effect on the performance of public tasks. The operating result corresponds in the FS Model to the net operating balance. The ordinary result in the statement of financial performance in the FS Model is the difference between ordinary revenue and ordinary expense. This equals the sum of the operating activity result and the overall fiscal balance. The ordinary result in the financing statement in the FS Model is the difference between ordinary receipts and ordinary expenditure. This equals the sum of the operating activity result, the overall fiscal balance and net investments. Receipts are third-party payments that add to non-financial or financial assets. Revenue is the entire increase in value during a given period. In the GFS Model, this is the same as receipts. Revenue from goods and services furnished by a government unit to a third party; also includes exemption taxes, revenue from fines and reimbursements from private individuals. The system of national accounts and financial statistics subdivide economic decision-makers into "institutional sectors". This delimitation is known as sectoring. Self-financing is an indicator used in the FS Model. It is defined as the surplus/deficit plus the depreciation of administrative assets and investment contributions, additional depreciation, net expense for funds and special financing in net assets/equity minus the increase in value of administrative assets and withdrawals from funds and special financing in net assets/equity. The self-financing ratio indicates what proportion of its net investments a government unit can finance with funds generated by itself. The statement of financial performance shows the value erosion (expenses) and value increase (revenue) during a given accounting period. The statement of financial performance result, or surplus/ deficit, known in the GFS Model as the net operating balance, shows the change in net assets/ equity (FS Model) or net worth (GFS Model). The statement of financial position informs about the use of funds (assets) and the source of funds (liabilities) at a specific point in time. Corresponds to the balance sheet in the GFS Model. Tax revenue is comprised of various taxes and other duties, in particular social security contributions, that are levied by the government units. The tax-to-gdp ratio equals the tax revenue of the general government in accordance with the GFS Model as a percentage of nominal GDP and is also in line with the guidelines of the Organisation for Economic Co-operation and Development (OECD) for revenue statistics. Transactions in non-financial assets (GFS Model) show the acquisition and disposal of non-financial assets from operating activities. This covers the acquisition and disposal of non-financial assets as well as the consumption of fixed capital (buildings, structures, equipment as well as substantial investments in land and natural resources). Transfers between the government units of the general government are made in the FS Model in the form of contributions and compensation. 120

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