Financial arrangements in Switzerland

Transcription

1 Cohesion challanges in federal countries: Financial arrangements in Switzerland OECD Global Forum on Governance Rio de Janairo, October 23 Roland Fischer

2 Taxing and spending powers of Confederation, Cantons and Communes Tax revenues 2005 (in millions of CHF) 22'560 ; 22% 47'494 ; 46% Gov. spending 2005 (in millions of CHF) 33'651 ; 32% Confederation Cantons Communes 37'620; 27% 52'569 ; 37% 49'958 ; 36% 2

3 Large economic and structural disparities => Index of aggregate tax base Bubble size = population Index for the degree of 0 urbanization

4 Zug Schwyz Nidwalden Zürich Appenzell I.Rh. Schaffhausen Aargau Tessin Basel-Landschaft Glarus Appenzell A.Rh. Waadt Neuenburg Obwalden Uri Wallis St. Gallen Basel-Stadt Thurgau Luzern Bern Graubünden Solothurn Freiburg Genf Jura => large fiscal disparities Tax burden of cantons and communes (= tax revenues in percent of aggragate tax base) 40% 35% 30% 25% 20% 15% 10% 5% 0% 4

5 The old financial equalization system Earmarked grants and tax sharing, based on the index of financial capacity: Average cantonal income (net social product) factor 1.5 Tax capacity (= tax revenues / index of average tax rate) factor 1.5 Index of average tax rates factor 1 Share of mountaineous regions relative to total area factor 1 wrong incentives due to index and dominance of earmarked grants increase in tax rates decrease in financial capacity increase in federal (earmarked) grants increase in spending poor cantons do not have incentives to increase their tax base by lowering the tax burden no reduction of disparities between cantons! 5

6 Reform of financial equalization and task allocation between the confederation and the cantons (NFA) Reform of financial equalization Reform of task allocation (=> reduction of earmarked grants) New system with new indicators, entirely based on non-earmarked horizontal and vertical transfers Disentanglement of tasks = clear assignement to either the Confederation or the cantons More result oriented financing and block grants for the remaining shared tasks New institutional framework for intercantonal cooperation 6

7 Difficulties and their solutions (I) Problem: different interests within the public sector: Confederation vs. cantons departments of finance vs. other departments rich cantons vs. poor cantons urban cantons vs. rural cantons french speaking cantons vs. german speaking cantons Solutions: Joint project organisation of Confederation and cantons, composed of politicians (steering committee) and specialists (technical working groups) from different regions and levels of government New fiscal equalization system composed of both revenue equalization and cost compensation 7

8 The new fiscal equalization system entirely based on non-earmarked grants 1. Vertical and horizontal ressource equalization income net assets profits aggregate tax base ressource index 2. Geographic-topographic cost compensation (only vertical) Structural indicators based on density, elevation and topographic location of settlements 3. Sozio-demographic cost compensation (only vertical) Structural indicators based on the share of the poor, the old and immigrants of total population as well as on the degree of urbanization 8

9 Difficulties and their solutions (II) Problem: the financial winner looser matrix (initial values 2001/02) net profit from reform net loss from reform rich cantons BS ZH, SZ, NW, ZG, BL, GE poor cantons Solution: BE, LU, UR, SO, SH, AI, SG, GR, AG, TI, TG, VS OW, FR, NE, JU, VD, GL, AR For poor cantons: temporary cohesion fund: no poor canton shall be a net looser in the first years of transformation to the new system For rich cantons: substantial reduction of earmarked grants => increase in spendig power 9

10 Net financial effect on cantons with cohesion fund (in percent of standardized tax revenues) Profit 50% 40% 30% 20% Cohesion fund Introduction of new system Abolition of old system Zero-Profit-Line (= reflection of abolition of old system) 10% 0% -10% -20% -30% -40% Loss ZG GE BS ZH SZ NW BL TI VD GL AG GR SH NE AR AI SG TG SO LU BE FR VS JU OW UR 10

11 Difficulties and their solutions (III) Problem: political camps had different expectations of the reform: Left-wing: no decentralization of government spending, strong increase of fiscal equalization, harmonization of tax rates Right-wing: strong decentralization, no increase of fiscal equalization, no reduction of tax competition Solutions: Budget neutrality of the reform => no reduction of total government spending => decentralization is compensated by an increase in fiscal equalization High legitimacy of the reform because of a strong majority in the mandatory plebiscite on the necessary constitutional changes => in 23 of 26 cantons, a majority of voters approved the reform! 11

12 Results of the popular vote on constitutional changes in the cantons Yes votes 90% 80% Swiss average 70% 60% 50% 40% 30% 20% 10% 0% Index of aggregate tax base 12