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Swiss huge budget surplus exceeds expectations

Swiss huge budget surplus exceeds expectations

26 February 2019

The Swiss government announced a surplus of 2018 budget that is ten times bigger than forecasted. A huge amount of 2.9 billion Swiss Francs of surplus is still a preliminary figure. The difference between reality and expectations in terms of surplus is raising concerns.

Ten times better

The initial forecast saw the budget surplus of 2018 at CHF300 million. However last week it was announced the preliminary figure of surplus is at CHF2.9 billion, almost ten times bigger than in the outlook. Last year a surplus was also an out-of-nowhere one with value of CHF2.8 billion. If the amount of surplus is confirmed, it will the best result since 2010. It will also mean that the Swiss gross debt is below CHF100 billion for the first time in 22 years. Last time such a low gross debt was recorded happened back in 2017.

Revenue growth influenced surplus

The government credited revenue growth as well as more disciplined spending as reasons for this surprisingly huge surplus. Direct federal taxes provided CHF22.4 billion income even though forecast was at CHF21.5 billion. The other much higher figure on the financial statement comparing to forecast was income from withholding tax that came in at CHF7.7 billion – CHF1.6 billion more than expected. At the same time expenses were at CHF70.6 billion, 0.6 percent below budget. It is very good result taking into the account the fact that since 2007 average expenses were at 1.6 percent below budget.

Good news or not so much?

Obviously the bigger the surplus, the better. The lower gross debt is also good news. However, the announcement of ten times bigger surplus in budget for 2018 has raised some concerns among experts. Why the difference between the outlook and the preliminary figure is so big? It is not the matter that the government is bad at math. The reason for underestimating the surplus is the underestimation of revenues. This should be more closely examined. The Socialists claimed lower budget forecast is not due to problems with counting but serves as an excuse for the government to introduce cost-cutting solutions, that come at the expense of the population of Switzerland. The budget process came under fire.

Predicting revenues is a challenge

The finance minister foreseen criticism and straight after showing new surplus figures, he published a document accurately “Did the government get is sums wrong?”, that is supposed to explain why the difference between forecast and actual figures is so big and who is to blame. The FDF claimed that errors were made in the incomes’ outlook, but they were impossible to avoid. Incomes change over time and are very hard to predict – especially revenues from withholding tax.

Outlook for 2020-2022

The Swiss government announced that due to improved revenue growth the outlook for years 2020-2022 was revised. As the current figures shows, there will no need to take any savings measures in 2020. That would mean a further cut of the gross debt will be possible and there will appear an option to make space for introducing new funding mechanism for pensions or for ditching so-called tax penalty for marriages. In Switzerland incomes of people who get married are combined and taxed together, which means they pay more taxes than those remaining unmarried who are taxed separately.

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