Public Finance Issues and Problems in Switzerland

Abstract

Switzerland is regarded as a bastion of financial conservatism, yet the Swiss federal government presently faces annual budget deficits of the highest magnitude in recent history. This article provides an overview of measures instituted in Switzerland to control the growth of the public sector and public spending. Recent efforts to raise new tax revenues are also discussed. To place the fiscal dilemma in perspective, an introduction to the structure of Swiss national government and the budgetary process is included. In analysis of Swiss budgetary politics, particular emphasis is given to the influence of the public referendum process on the political dynamics of resource decision making. The authors also analyze the area of the Swiss budget that is growing most rapidly—mandated entitlements—especially payments for unemployment compensation. A prolonged economic recession in Europe has created high unemployment and, consequently, high demand for unemployment compensation and other social “safety net” programs and spending. The most prominent feature of the Swiss political system is that it is headed by a stable coalition government in which leadership does not alternate between different political parties. This system confronts social and policy problems in a slow and deliberate manner due to the necessity for consultation and compromise in a multi-party coalitional government. The advantage of this system is stability and prudence, the disadvantage is perhaps short-term unresponsiveness to budgetary and policy dilemmas of the type now faced in Switzerland. Parallels are drawn between the Swiss budgetary problem and that faced by the U.S. executive and Congress.