Fiscal Federalism in Switzerland Characteristics of Swiss Federalism and Reform Issues
Institute for Management and Regional Economics Stefan Pfaeffli
Lucerne, 7 July 2011 Subjects
. General characteristics of federalist Switzerland
. Tasks and funding of the sub-national level
. Reform of federalism between confederation and cantons
. Organization and role of Municipalities
Slide 2, 7 July 2011
General Characteristics of Federalist Switzerland
Slide 3 , 7 July 2011 Facts and Figures for Switzerland at First Glance
- Area: 41,300 sq km - Population: 7.7 M - Density: 185 persons per sq km - 3 Official Languages: German, French, Italian - Foreigners: 1.735 M ~ 22.1% of pop. 1 - Labor Force: 4.8 M 2 - Unemployment Rate: 2.9% 3 - GDP: $ 666.3 B 4; 535 B CHF - GDP per Capita: $ 86,532; 69,500 CHF - Government Debt: 38.8% of GDP 5
1) April 2011 2)End 2010 3) Mai 2011 4) 2008, at current exchange rate 5) End 2009
Slide 4 , 7 July 2011 Map of Switzerland
Slide 5 , 7 July 2011 Three levels of Government in Switzerland
National Government
26 Cantons 20 full, 6 half
~2700 Municipalities
Slide 6 , 7 July 2011 Characteristics of National Government
- Federal State (Republic) - Strong federalism: principle of subsidiarity - Direct democracy at federal level: - Initiative: 100,000 signatures - Referendum: 50,000 signatures - Organization of Government: Big Coalition, currently center right (2 SP, 1 CVP, 2 FDP, 1 SVP, 1 BDP); Election by Parliament; Term of office: 4 years - Parliament: Two-Chamber-System: National Council (Representatives of citizens; elected proportionally) Council of States (Senate; two representatives per Canton)
Slide 7 , 7 July 2011 Principles of the Distribution of Power between the Cantons and the Confederation
-Federal authority only if stipulated in federal constitution -Federal constitution must enumerate all federal powers individually and completely New public tasks are initially within the authority of the cantons New federal powers require an amendment of the federal constitution An amendment of the federal constitution always demands a referendum with a double majority, majority of states and citizens This rule on the assignment of power eliminates confusion.
Slide 8 , 7 July 2011 State Entities and Para-State
State Entities
- Confederation: central government
- Cantons 40,756,63 o 20 Full Cantons + 6 Half Cantons 8 o With cantonal laws and high level of 24% 57,234,09 autonomy 7 34% - Municipalities o ~ 2700 o Tasks / Position depends on canton 71,084,52 o Average size of municipality: 2400 persons 0 o Local autonomy (within limits): 42% organization, funding, execution of mandatory and voluntary tasks
Para-State Sector Confederation Cantons Municipalities - Postal service, Railway, Social Insurance, Power supply, …
Slide 9 , 7 July 2011 Cantonal DisparitiesKantonale Disparitäten
20.0% 120000
18.0% Flächenanteil 100000 Bevölkerungsanteil
16.0% 107592 VE pro Kopf
14.0% Situation 2004 92168 80000
12.0%
10.0% 69865 60000
68450
67375
in CHF in
Anteile 61223
8.0%
53916 51917
51474 40000
49336
48401
48153 45946
6.0% 45873
45492
44845
44374
44230
44103
43488
42592
40577
38760 38762 38562 4.0% 36850 20000
2.0%
0.0% 0 AG AR AI BS BL BE FR GE GL GR JU LU NE NW OW SG SH SZ SO TI TG UR VD VS ZG ZH
Slide 10, 7 July 2011 Political Steering Power (Broad Overview)
Municipalities Municipalities with Local without Local Area Confederation Cantons Parliaments Parliaments
Election of Government Parliament Citizens Citizens Citizens
Election of Parliament Citizens of Ct. Citizens Citizens ----
Constitution Citizens &. Ct. Citizens Citizens Citizens Parliament, sometimes Law Parliament also Citizens Parliament Citizens
Initiative Citizens &. Ct. Citizens Citizens Citizens
Referendum Citizens & Ct. Citizens Citizens Citizens Approval of Financial Statement Parliament Parliament Parliament Citizens
Adoption of New Budget Parliament Parliament Parliament Citizens
Approval of Taxes Parliament Parliament Parliament Citizens
Slide 11 , 7 July 2011 Tasks and Funding on Sub-National Level
Slide 12 , 7 July 2011 Current Distribution of Tasks between Confederation, Cantons and Municipalities
Soicial Protection
Education
Recreation, Culture, and Religion
Health
Housing and Community Amenities
Environmental Protection
Economic Affairs
Public Order and Safety
Defense
General Public Services
0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 Data 2005 Data 2008 Confederation Cantons Municipalities
Slide 13 , 7 July 2011 Main Tasks of Cantons (Expenses in 1000 CHF in 2008)
Soicial Protection 13,647,867
Education 20,907,559
Recreation, Culture, and Religion 1,542,273
Health 9,004,105
Housing and Community Amenities 204,213
Environmental Protection 643,270
Economic Affairs 10,586,594
Public Order and Safety 5,669,565
Defense 212,232
General Public Services 8,666,842
0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000
Slide 14 , 7 July 2011 15.08.05
Revenue-Splitting
Taxed Object Confederation Cantons Municipalities Incomes Direct Federal Tax Direct Income Tax Supplement Wealth Tax on Wealth Supplement Profit Tax on Profit Tax on Profit Tax on Profit Capital Tax on Capital Tax on Capital Consumption Value Added Tax Consumption of Particular Goods e.g. gasoline
Inheritance/Gifts optional possibly Particular Public Services on Demand Charges Charges Charges
Not complete!
Slide 15 , 7 July 2011 System of Tax Sharing in Switzerland T M
C M
1U
C N
R
Slide 16 , 7 July 2011 Use and Weight of Taxes and Charges
Data from 2008
Weight of Income Sources Other
Tariffs Other 0.8% Tariffs 0.8% Motor Vehicle Tax &… Motor Vehicle Tax & Charges 3.4% Inheritance Tax Inheritance Tax 0.7% Capital Transfer Tax Capital Transfer Tax 0.9% Capital Gains Tax Capital Gains Tax 1.2% Withholding Tax Withholding Tax 5.3% Consumption Taxes Consumption Taxes 25.6% Land Value Tax Land Value Tax 0.8% Tax on Capital Tax on Capital 1.3% Tax on Profits Tax on Profits 14.5%
Wealth Tax Wealth Tax 4.4%
Income Tax Income Tax 40.4%
0% 20% 40% 60% 80% 100% 0.0% 10.0%20.0%30.0%40.0%50.0%
Confederation Cantons Municipalities
Slide 17 , 7 July 2011 Splitting of Main Revenue among Levels of Government
- Revenue of individuals and of legal entities are taxed by all three levels of government
- Wealth is only taxed by cantons and municipalities
- Although revenue sources are split among the levels, there are no fixed quotas in place - Tax laws are enacted by cantons. The cantons determine deductions, tax scales and tax units
- Municipal Supplements are determined by each municipality
- Tax on consumption only belongs to the Confederation
- Charges are levied only by cantons and the municipalities
Slide 18 , 7 July 2011 Divergence of Tax Burdens in the Cantons Tax-Burden Index for a family with 2 children in 2006 (income and wealth tax by canton, municipality and church) JU 137.7 GE 78.2 NE 174.3 VS 111.2 VD 90.2 TI 47.8 TG 65 AG 85 GR 135 SG 122.5 AI 136.5 AR 148.6 SH 122.6 BL 108 BS 100 SO 119.6 FR 115 ZG 43.3 GL 180 NW 96.1 O 184.6 SZ 80.7 UR 207.3 LU 129.1 BE 114.8 ZH 89.2 highest : lowest = 4.79 0 50 100 150 200 250 Slide 19 , 7 July 2011 Reforming Federalism Confederation - Cantons
Slide 20 , 7 July 2011 Reforming Federalism in Switzerland
Overview in in the broader sense . New assignment of tasks and finances Financial equalization (in place since 01/01/2008) - New assignment of tasks - New assignment of costs and finances - Fine-tuning by financial equalization
in the stricter sense
. Territory reform especially at municipal level
. Reform projects at the upper levels (confederation- cantons) and lower levels (cantons-municipalities)
Slide 21 , 7 July 2011 NFA – the Paramount Reform of Federalism
1. Clarification of functional responsibilities of each state level i. Disentanglement of responsibilities ii. Improve vertical collaboration between federal and cantonal level steering of shared functions (program approach) iii. Foster horizontal collaboration among cantons
2. Reduce discrepancies between cantons i. Resource leveling (minimum funding level) ii. Compensation of extra costs (topographic and socio-demographic
Slide 22 , 7 July 2011 New Assignment of Tasks I: Disentanglement (effective since 2008)
Centralization Cantonalization
- Retirement Insurance - Homes for the elderly: contribution for construction - Disability Insurance and operation - Highways - Special Education o Construction - Home Care o Management - Education in Social Professions o Maintenance - Grants below University Level - Agricultural Consultation - Voluntary School Sports Centers - Separation of Traffic outside o Breeding of farm animals Urban Areas: Modernization of Railroad Crossings - Airports - Subsidies for Construction in Montain Areas - Direct Advice to Farmers
Slide 23 , 7 July 2011 New Assignment of Tasks II:
Simplified Collaboration between Confederation and Cantons
Premium Reduction in Health Insurance Fixed Contribution Supplementary Aid for the Elderly no grading related Regional Public Transportation to financial strength
Traffic in Urban Areas Noise Management Protecting Nature and Landscape Flood Prevention Program Budgeting Water Conservation Improving Farming Structures Forests, Hunting, Fishing
Main Roads Earmarked Grant
Official Land Survey Management by Objectives from Confederation to Cantons
Slide 24 , 7 July 2011 New Assignment of Tasks III: Improved Collaboration among Cantons
- Integration of Disabled Persons - Cutting Edge Medicine, Specialized Hospitals Inter-Cantonal Framework of Horizontal Cooperation - Cantonal Universities - optimized across cantons - Universities of Applied Sciences - who takes advantage = who decides - Urban Transportation = who pays - more efficiency - Prominent Theaters, Museums, etc. - Waste Management - Sewage
Slide 25 , 7 July 2011 15.08.05 Financial Equalization (in the stricter sense) Confederation
590 M CHF 1,557 M CHF
Cost Compensation Resource Leveling GCC SCC VRL HRL
295 M CHF 295 M CHF 2,646 M CHF 1,090 M CHF Cantons with Extra Burdens
Resources-Weak Cantons Resources-Strong Cantons
GCC = Geographic-Topographic Cost Compensation SLC = Socio-Demographic Cost Compensation HRL = Horizontal Resource Leveling VRL = Vertical Resource Leveling
Slide 26 , 7 July 2011 NFA Resource Leveling
Slide 27 , 7 July 2011 NFA – Geographic-Topographic Cost Compensation
Slide 28 , 7 July 2011 NFA – Socio-Demographic Cost Compensation
Slide 29 , 7 July 2011 Organization and Role of Municipalities
Slide 30 , 7 July 2011 Municipality – Standard Organization
Citizens o Ballot Box Citizens o Municipal Meeting
Municipal Parliament (not mandatory)
Audit Committee Parliament
Controlling Commission (voluntary) o Advise on political steering o Participate in control cycle Audit Committee Controlling Commission Municipal Government o 3-7 members / principle of collegiality o Directly elected by municipal citizens o Proportional vote frequent, Municipal Government but not mandatory
Commission
Administration Municipal Administration Commissions
Slide 31 , 7 July 2011 Main Tasks for Municipalities
Organization of Municipality - Management System - Election of Local Government Bodies - Human Resources Tax Collection - Cantonal taxes - Local taxes (municipality, church) Maintaining Order / Rescue Services - Building Inspection - Fire Brigade Registration - Residents, birth, death, marriage Education - Elementary School and Kindergarden - Music Schools Social Welfare - Social Aid - Retirement Homes, Nursing Homes Health - Home Care Traffic - Regional and urban public transportation - Municipal roads Environment and Development - Sewage and waste management - Spacial planning Culture, Leisure, Sports - Centers for culture, leisure and sports for the municipality, e.g. libraries, theatres, museums, concert halls, stadiums, ice skating rinks, swimming pools, playgrounds Votes and Elections - Organizing and conducting federal, cantonal and municipal votes and elections
Slide 32 , 7 July 2011 Financial Responsibility of Municipality
Investment Grants Revenues Earmarked 3% 13% Grants not Earmarked 4% Taxes 48%
Charges Only 17% 26% Permits, Licences are Grants! 0%
Returns on Figures 2005 Assets 6% Slide 33 , 7 July 2011 Disparities in Tax Burden in the Lucerne Area 2007 Udligenswil 1.6 1.95 Schwarzenberg 1.6 2.40
Rothenburg 1.6 1.90 Root 1.6 1.80
Rain 1.6 1.95
Meierskappel 1.6 2.25
Meggen 1.6 1.15 Malters 1.6 2.35 Luzern 1.6 1.85 Littau 1.6 2.20 Kriens 1.6 2.00 Horw 1.6 1.70 Honau 1.6 1.60 Hildisrieden 1.6 1.90
1.6 1.85 Greppen Kanton Gisikon 1.6 1.80 Gemeinde
Eschenbach 1.6 1.50 High :Low High:Low = 2.1 Emmen 1.6 2.05
1.6 1.95
Ebikon only Taxes Municipal Dierikon 1.6 1.70 Buchrain 1.6 2.05 Adligenswil 1.6 1.95
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Slide 34 , 7 July 2011 Reforming Federalism within Cantons Canton of Lucerne - “Luzern ’99 – Gemeindereform 2000+”
- Duration of project 1997-2008 - Goals - More efficient municipalities - Improved municipal capacity to respond to citizens’ needs - Better partnership between municipalities and Canton - Content of project - Better distribution of tasks: disentanglement / congruence of power and responsibility - More efficient financial equalization - Resource leveling - Cost compensation - Improvement of external structures - Better collaboration among municipalities - Merging municipalities - Improving internal structures (new Municipal Law)
- Clearer distinction between strategic and operative functions: Role of government and administration - More management (new instruments for planning and controlling) - Medium-term planning of tasks and finances, annual plan, annual budget (before only financial plan and budget mandatory) - Cost accounting (showing full costs, more transparency) - Three options for annual budget statement: cost-accounting, NPM or cash-based format - Reduced Cantonal Monitoring (more responsibility for municipality) - Limited to four areas: democratic standards, rule of law, minimal administrative requirements and the existence of a controlling system CS. The CS must follow the Municipal Statute; annual budget, medium term planning, annual plan, annual report and statement are in place. - Canton may not interfere with implementation and evaluation of policy, unless required by special law. - Inter-municipal collaboration
Slide 35 , 7 July 2011 Municipal Autonomy and State Liability
- Reforming federalism more room for action for the municipalities - More opportunities – more risks! - Cantonal liability for municipalities – yes or no? “Moral hazard” – problem - Severe conditions for the Canton’s liability: oGuarantee of Canton for Municipality oPoor supervision oDirect cause of poor supervision; proof of causation
No more Zero-Deficit Guarantee Monitoring only summarily
Slide 36 , 7 July 2011