“Today’s debts are tomorrow’s taxes”

updated

debt brakeFederal deficit in the billions – “Today’s debts are tomorrow’s taxes”

After last year’s minus of 12.2 billion francs, the federal government is again heading for a loss of billions. Two financial professionals explain what this means for you.

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The Federal Ministry of Finance expects a deficit of CHF 4.1 billion for the federal government in 2022.

20 minutes/Simon Glauser

Ueli Maurer has been the head of the department since 2016.  It demands that Parliament refrain from spending that cannot be financed.

Ueli Maurer has been the head of the department since 2016. It demands that Parliament refrain from spending that cannot be financed.

20 minutes/Simon Glauser

According to the chairman of the finance committee of the National Council, Roland Fischer, the committees in the parliament decided on additional expenses without counter-financing.

According to the chairman of the finance committee of the National Council, Roland Fischer, the committees in the parliament decided on additional expenses without counter-financing.

20 minutes/Simon Glauser

It’s about it

  • The federal government should generate a deficit of at least 4 billion francs this year.

  • By 2026, heavy losses are likely.

  • The debt brake enshrined in the constitution should prevent exactly that.

  • If the federal government doesn’t get back on track financially, taxes are at risk.

Economiesuisse is sounding the alarm: the federal government’s finances are under pressure and there will only be losses by 2026. It now needs discipline and counter-funding of all spending, the trade association says.

Last year, the federal government closed its financial year with a deficit of CHF 12.2 billion. In 2022, the Federal Ministry of Finance expects minus 4.1 billion. Two financial professionals explain what that means.

Why are there billions of losses?

Economiesuisse says that because spending has soared on cuts to insurance premiums, nurseries, public transport, the military and energy, climate and environment subsidies. The corona pandemic and the wave of refugees due to the war in Ukraine also cause additional expenses.

Shouldn’t the debt brake prevent that?

Yes, it should prevent Parliament from running ever higher deficits (see box). But exceptions are possible, for example in the case of a severe recession, natural disasters or, as is currently the case, a pandemic.

That’s the debt brake

The debt brake requires federal revenues and expenditures to be in balance. Debts should not increase excessively in this way. The brake allows for limited deficits during an economic downturn. But if things pick up, he’ll ask for surpluses.

Will the Federal Council intervene now?

The Federal Council demands that the parliament refrain from spending that cannot be financed. For example, if there is a reduction in insurance premiums, you should finance this in return – for example through higher VAT. However, this is out of the question for Economiesuisse in the short term: the people would first have to confirm the tax increase.

What do billion losses mean for the people of Switzerland?

They should not burden the population, says Lea Flügel from Economiesuisse. The debt brake was supposed to prevent federal deficits from seeping into people’s everyday lives. “But today’s debts are often tomorrow’s taxes,” says the association’s project manager for finance and taxes.

What needs to change now?

Wing calls for the 2023 budget to match the debt brake. Cleaning is needed for the financial plan. In the case of new expenses, it should be stated how they are financed. It is also important that the federal government only moves expenses to the emergency budget under strict conditions, where Corona expenses are also recorded. Everything else is a circumvention of the debt brake and a violation of the Swiss constitution.

What does the Parliament say about the loss?

According to the chairman of the finance committee of the National Council, Roland Fischer, the committees in the parliament decided on additional expenses without counter-financing. For example, with the increase in military spending, counterproposals to the iceberg initiative and the premium reduction initiative. The Green Liberal criticizes that the Finance Commission was never able to comment on these expenses.

How does the finance commission react?

she has got presented a parliamentary initiative requiring that decisions with significant financial implications be consulted with finance committees. The deposit is still pending.

What happens if the federal government continues to show losses?

“The federal government is not allowed to do this for a long time – at least not in the regular budget,” says Fischer. Because this would violate the debt brake and thus the Swiss constitution. To prevent this from happening, the Parliament must include austerity measures in the budget.

Is raising taxes an alternative?

Yes, but according to Fischer, a tax increase is possible only in 2025 or 2026 at the earliest. In the short term, the federal government should reduce spending in a targeted manner. Otherwise, from the 2024 budget, cuts will be necessary in so-called loosely tied spending, for example in the military, agriculture, education and culture. According to Fischer, expenditures for the transport infrastructure fund and AHV are legally binding.

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