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
April 2011
2)End 2010
3) Mai 2011
4) 2008, at current exchange rate
5) End 2009
1)
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
o 20 Full Cantons + 6 Half Cantons
o With cantonal laws and high level of
autonomy
40,756,63
8
24%
57,234,09
7
34%
- Municipalities
o
o
o
o
~ 2700
Tasks / Position depends on canton
Average size of municipality: 2400 persons
Local autonomy (within limits):
organization, funding, execution of
mandatory and voluntary tasks
Para-State Sector
- Postal service, Railway, Social
Insurance, Power supply, …
Slide
9 , 7 July 2011
71,084,52
0
42%
Confederation
Cantons
Municipalities
Cantonal Disparities
Kantonale Disparitäten
20.0%
120000
107592
18.0%
16.0%
Flächenanteil
100000
Bevölkerungsanteil
92168
VE pro Kopf
14.0%
Situation 2004
80000
60000
36850
40000
4.0%
20000
2.0%
0.0%
0
AG AR
Slide
AI
BS
BL
10, 7 July 2011
BE
FR GE GL GR JU
LU
NE NW OW SG SH
SZ
SO
TI
TG UR VD
VS ZG ZH
in CHF
67375
51474
44374
44230
40577
45873
49336
53916
44103
38562
48401
42592
38762
45946
68450
69865
61223
38760
45492
6.0%
43488
8.0%
44845
51917
10.0%
48153
Anteile
12.0%
Political Steering Power
(Broad Overview)
Area
Confederation
Cantons
Municipalities
with Local
Parliaments
Election of Government
Parliament
Citizens
Citizens
Citizens
Election of Parliament
Citizens of Ct.
Citizens
Citizens
----
Constitution
Citizens &. Ct.
Citizens
Citizens
Citizens
Law
Parliament
Parliament,
sometimes
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
Municipalities
without Local
Parliaments
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
Data 2008
Slide
13 , 7 July 2011
10,000,000
Confederation
Cantons
20,000,000
30,000,000
Municipalities
40,000,000
Data 2005
50,000,000
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
Slide
14 , 7 July 2011
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
15.08.05
Revenue-Splitting
Taxed Object
Confederation
Cantons
Municipalities
Incomes
Direct Federal Tax
Direct Income Tax
Supplement
Tax on Wealth
Supplement
Tax on Profit
Tax on Profit
Tax on Capital
Tax on Capital
optional
possibly
Charges
Charges
Wealth
Profit
Tax on Profit
Capital
Consumption
Value Added Tax
Consumption of
Particular Goods
e.g. gasoline
Inheritance/Gifts
Particular Public Services
on Demand
Not complete!
Slide
15 , 7 July 2011
Charges
System of Tax Sharing in Switzerland
T
M
M
C
1U
C
R
Slide
16 , 7 July 2011
N
Use and Weight of Taxes and Charges
Data from 2008
Weight of Income Sources
Other
Tariffs
Motor Vehicle Tax &…
Other
0.8%
Tariffs
0.8%
Motor Vehicle Tax & Charges
Inheritance Tax
Capital Transfer Tax
Capital Gains Tax
Withholding Tax
3.4%
Inheritance Tax
0.7%
Capital Transfer Tax
0.9%
Capital Gains Tax
1.2%
Withholding Tax
5.3%
Consumption Taxes
Consumption Taxes
Land Value Tax
Land Value Tax
0.8%
Tax on Capital
Tax on Capital
1.3%
Tax on Profits
Tax on Profits
Wealth Tax
Wealth Tax
Income Tax
Income Tax
0%
20%
Confederation
Slide
17 , 7 July 2011
40%
Cantons
60%
80% 100%
Municipalities
25.6%
14.5%
4.4%
40.4%
0.0% 10.0%20.0%30.0%40.0%50.0%
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)
137.7
JU
GE
NE
VS
VD
TI
TG
AG
GR
SG
AI
AR
SH
BL
BS
SO
FR
ZG
GL
NW
O
SZ
UR
LU
BE
ZH
78.2
174.3
111.2
90.2
47.8
65
85
135
122.5
136.5
148.6
122.6
108
100
119.6
115
43.3
180
96.1
184.6
80.7
207.3
129.1
114.8
89.2
0
Slide
50
19 , 7 July 2011
100
150
highest : lowest = 4.79
200
250
Reforming Federalism
Confederation - Cantons
Slide
20 , 7 July 2011
Reforming Federalism in Switzerland
Overview
Financial equalization
in the broader sense
 New assignment of tasks and finances
(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 (confederationcantons) 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
- Disability Insurance
- Highways
o Construction
o Management
o Maintenance
- Agricultural Consultation
Centers
o Breeding of farm animals
- Homes for the elderly:
contribution for construction
and operation
- Special Education
- Home Care
- Education in Social Professions
- Grants below University Level
- Voluntary School Sports
- Separation of Traffic outside
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
Supplementary Aid for the Elderly
Regional Public Transportation
Fixed Contribution
no grading related
to financial strength
Traffic in Urban Areas
Noise Management
Protecting Nature and Landscape
Flood Prevention
Water Conservation
Improving Farming Structures
Forests, Hunting, Fishing
Program Budgeting
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
- Cantonal Universities
- Universities of Applied Sciences
- Urban Transportation
- Prominent Theaters, Museums, etc.
- Waste Management
- Sewage
Slide
25 , 7 July 2011
Inter-Cantonal Framework
of Horizontal Cooperation
- optimized across cantons
- who takes advantage
= who decides
= who pays
- more efficiency
Financial Equalization
15.08.05
(in the stricter sense)
Confederation
590 M CHF
1,557 M CHF
Cost Compensation
GCC
295 M CHF
SCC
295 M CHF
Resource Leveling
VRL
HRL
2,646 M CHF
1,090 M CHF
Cantons with Extra Burdens
Resources-Weak Cantons
GCC = Geographic-Topographic Cost Compensation
HRL = Horizontal Resource Leveling
Slide
26 , 7 July 2011
Resources-Strong Cantons
SLC = Socio-Demographic Cost Compensation
VRL = Vertical Resource Leveling
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
o Municipal Meeting
Municipal Parliament
Citizens
(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,
but not mandatory
Municipal Government
Commission
Administration
Slide
31 , 7 July 2011
Municipal Administration
Commissions
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%
Charges
26%
Taxes
48%
Permits,
Licences
0%
Returns on
Assets
6%
Slide
33 , 7 July 2011
Only 17%
are Grants!
Figures 2005
Disparities in Tax Burden
in the Lucerne Area 2007
1.6
Schwarzenberg
1.6
Rothenburg
1.6
Root
1.6
Rain
1.6
Meierskappel
1.6
Meggen
1.6
Malters
1.6
Luzern
1.6
Littau
1.6
Kriens
1.6
Horw
1.6
Honau
1.6
Hildisrieden
1.6
Greppen
1.6
Gisikon
1.6
Eschenbach
1.6
Emmen
1.6
Ebikon
1.6
Dierikon
1.6
Buchrain
1.6
Adligenswil
1.6
0
Slide
0.5
34 , 7 July 2011
1.95
2.40
1.90
1.80
1.95
Municipal Taxes only
High :Low = 2.1
Udligenswil
2.25
1.15
2.35
1.85
2.20
2.00
1.70
1.60
1.90
1.85
Kanton
Gemeinde
1.80
1.50
2.05
1.95
1.70
2.05
1.95
1
1.5
2
2.5
3
3.5
4
4.5
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)
-
-
-
Slide
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
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