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 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 the broader sense broader the in . New assignment of tasks and finances equalization Financial (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