The pandemic will have serious consequences on Swiss tax revenues. State finances will have to overcome their worst crisis in decades.
The record decline in the Swiss economy, due to the coronavirus pandemic, will have a strong negative impact on the State’s tax revenues. After having benefited from a positive financial situation in 2018 and 2019, Swiss public finances will have to overcome the worst crisis in decades.
Since 2014, the finances of public administrations (Confederation, cantons, municipalities and social insurance) have shown comfortable surpluses. Without the crisis, this development would likely have continued in 2020, the Swiss Federal Finance Administration’s 2018-2021 report on Swiss public finances said on Monday.
The financing account should have shown a surplus of 8.5 billion francs in 2020, as estimated last March before the pandemic. Henceforth, due to the extraordinary situation, public finances are expected to close on a record deficit of 24.6 billion, or 3.7% of GDP.
Tax revenues will decline sharply at all levels of the state. The rise in the unemployment rate should cause a sharp increase in social insurance spending (+16 billion), which will lead to a sharp increase in the State’s debt.
The recovery is expected to be moderate next year. GDP is not yet expected to return to its pre-pandemic level, but tax revenues should be able to grow again. The extraordinary measures linked to the crisis should for the most part not be renewed. State sector expenditure is expected to decline sharply (-11 billion) as a result.
On the other hand, social insurance spending is expected to be 8 billion above the pre-crisis level. In question, the continuous rise in the unemployment rate.
In 2018, the general government achieved its best result in ten years thanks to a share of the surplus of 1.3% of the gross domestic product (GDP). In 2019, the general government surplus is expected to remain substantial (1.4%).
Due to the current situation, general government should expect a significant increase in its gross debt. This, which is expected to reach 216.9 billion francs in 2019, will increase by 11.5 billion in 2020 and an additional 9 billion in 2021.
The resurgence of the Covid-19 pandemic in Switzerland and among its main trading partners is one of the main short-term risks, notes the Federal Finance Administration. The level of income from withholding tax is also uncertain.
However, certain indicators suggest that the economic recovery could be faster than expected, which would be beneficial to the development of public finances. In international comparison, however, Swiss public administration finances remain solid. They should withstand the crisis better than other industrialized countries.