fiscal policy with a fiscal rule - pempal.org · 14 federal department of finance fdf federal...

Federal Department of Finance FDF

Federal Finance Administration FFA

Fiscal Policy with a Fiscal Rule

on the federal level in Switzerland

Alain Geier, Economist

Federal Finance Administration

7. July 2011

2



Agenda

1. Public Finance in Switzerland: An Overview

2. Budget Process and Budget Implementation at the Federal

Level

3. Macro Framework of the Federal Budget: Debt Brake

4. Questions & Discussion

Alain Geier / 7. July 2011

3


Federal Finance Administration FFA Alain Geier / 7. July 2011

1. Public Finance in Switzerland:

an Overview

4



The three political levels

The Confederation

The 26 cantons

2„596 communes

5



General government finance 2010

Billions of Swiss Francs

Revenue Expenditure

Net Lending /

Borrowing

Confederation 57.0 57.9 -0.9

Cantons 75.0 76.3 -1.3

Communes 46.8 48.2 -1.3

Social Security 53.3 56.5 -3.2

General Government 189.6 196.3 -6.7

Subcentral Governments 64.3% 63.4% 38.6%

6



Net lending / borrowing

-20'000

-15'000

-10'000

-5'000

0

5'000

10'000

15'000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

*20

10*

2011

*20

12*

2013

*

in mio. CHF

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

as % of GDP

Confederation Cantons Communes Social security as % of GDP

7



3. Budget Process and Budget

Implementation at the Federal Level

8



Aspects of the federal budget (1)

• Maximum tax rates (revenues) stipulated in

Constitution

• Expenditures are decided by Parliament

• Cabinet sets up budget proposal

• Parliament (both chambers) amends and decides on

budget


9




• Parliament ultimately decides on budget as a whole

• Parliament allows and amends individual credits

• Supplementary credits during budget execution

• Fiscal rule determines ceilings for expenditures

• Federal Council guidelines represent top down

approach based on the ceilings


10




• Between 1500 and 1700 budget items

• Central management of payments

• Procedure if annual credits to be exceeded:

• Supplementary credits

• Exceeding of credits

• «Inspectorate» at the level of departments

• «Financial Control» in charge of general accounts

11



Timetable

• February: budgetary targets and guidelines

• April: budgetary request are submitted

• June: 1st budget discussion by FC

• July: 2nd budget discussion by FC

• August: FC approves budget message

• September: Start of deliberations in fiscal

committees

• December: Budget debate in both chambers


12



Impact of “fiscal rule” on budget

procedure and fiscal policy

• More top-down elements

• Revenue forecasting is of particular importance

• Consolidation programs

• Short term effects on budget composition

• Pressure to define priorities


13



2. Macro Framework of the Federal

Budget: Debt Brake

14



General Government - Gross Public

Debt 1980-2009

• Nearly all 26 Cantons have fiscal rules – the first since 1929

• Central Government since 2003

0

50

100

150

200

250

300

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

in b

n. C

HF

0%

10%

20%

30%

40%

50%

60%

as

% o

f G

DP

Communes Cantons Confederation General Government in % of GDP

15



Why a fiscal rule ?

• Bias towards excessive deficits

• Institutional “weaknesses” that can be corrected

• Policy mix: automatic stabilisers and monetary policy

• Political process: ex ante agreement on principles


16



Debt brake principle

boom recession

surplus deficit

debt brake: balances budget

business cycle developments

receipts

gross domestic product

time

time

receipts / expendi-tures permissible

expenditures =receipts adjusted for business cycle

business cycle

influ

en

ces


17



Main elements of the Debt Brake Rule

at the Federal Level

Simple and transparent rule:

Expenditure = cyclical factor x revenues

balanced accounts over the business cycle

Comprehensive coverage of expenditure items.

Limited exceptions for extraordinary events.

Notional account to track deviations.

Pre-defined sanctions in the Finance Law for non-

compliance.

High legitimacy anchored in the Constitution

mandatory popular vote in 2001

(85% in favour)

18



Calculation of expenditure ceiling

permissible expenditures (G) = revenues (T) multiplied with

business cycle adjustment factor (k)

G = T · k

with k = trend GDP / real GDP


19



Experiences and Limitations

Positive experience so far

• Introduced top-down approach into fiscal policy, which

facilitates budget process

• Rule-based fiscal policy strengthens fiscal responsibility

within coalition government and within parliament

• Forces rapid reaction to changing budgetary situations

However no panacea

• Problems of budget quality and composition must be

solved by other instruments (e.g. Task Evaluation

Program)

• Focus of debt brake is short term: no direct incentive to

tackle long-term challenges


20



Conclusion

• Central government budget is characterized by three

special features:

• Political environment: direct democracy /

federalism

• Debt containment rule

• Federal budget as a transfer budget


21



END

fiscal policy with a fiscal rule - pempal.org · 14 federal department of finance fdf federal...

Documents