With the country facing deficits in the billions of francs, the Swiss government has announced a raft of new austerity measures set to affect all residents of the alpine nation. Here’s what you need to know about the four billion francs in cuts and what impact they will have.

Switzerland to cut federal spending by up to 4,5 billion francs a year

At a press conference, the Federal Council confirmed that it would be cutting its budget by 3,58 billion francs a year between 2027 and 2030, and by a further 4,54 billion francs from 2030 onwards. Of the around 70 austerity measures originally proposed by experts on behalf of the government, the executive has decided to go forward with most of the recommendations, alongside some new additions.

The spending cut is designed to compensate for rising national expenditure caused by a four billion franc increase in defence spending and expected rises in the cost of the pension system. Lawmakers argued that if nothing is done, federal authorities face an annual deficit of 3 billion francs, coming up against Switzerland’s “debt brake” mechanism - imposed in the 1990s, by law the rule ties ordinary day-to-day spending with the amount the government will receive through taxes and other fees.

Expat guide to the planned austerity measures in Switzerland

Among the 60 measures include cuts that will be felt by all residents of Switzerland. Here are the most important cost-cutting plans to know, and what their impact will be:

All federal funding for childcare services in Switzerland scrapped

First, the government plans to scrap all planned federal subsidies for childcare services in Switzerland. In future it will be up to Swiss cantons to subsidise the services, saving federal authorities 811 million francs a year by 2030 - for reference, a 2023 report found that families spend an average of 27 percent of their incomes on childcare, the highest amount in Europe. 

Any proposal to subsidise or cover the cost of childcare would have to be funded through tax increases.

First pillar Swiss pensions to be reformed

Next, the Swiss government will reduce the amount it spends on first pillar pensions (AHV / OASI). Instead of tying spending to inflation, they propose that AHV be tied to income generated by value-added tax, a move which would save the government at least 208 million francs a year.

While the decision will not lead to lower pensions in the short to medium term, it will reduce the amount of funding given to the AHV. This will make the prospect of reforms to the system - from higher retirement ages to lower payments - all the more likely.

“Every year, AHV expenditure grows faster than federal revenue," explained Federal Councillor Elisabeth Baume-Schneider (SP). Therefore, she argued that tying pension rises to VAT income helps reflect inflation while better linking the system to what the government can afford.

Swiss train ticket prices expected to rise

In transport, the government will cut 200 million francs a year from the Railway Infrastructure Fund (BIF) - the fund used to operate, maintain and expand rail transport in Switzerland. It will also be cutting funding for Swiss roads and motorways by 117 million and will request that regional transport providers raise their ticket prices. 

Higher capital taxes on Swiss pensions

As part of the only profit-making reform, the Federal Council will increase taxes on occupational (2nd pillar) and private (3rd pillar) pensions, when they are used for capital withdrawals. These are, for instance, when pension money is used to finance buying a house in Switzerland.

These measures are expected to earn the government 220 million francs. 

What other programmes will be cut?

Some of the other notable programmes expected to be cut are as follows:

• Cuts to climate construction initiatives.
• Reduction in subsidies to Swiss universities controlled by cantons - tuition fees are already set to be tripled at the country’s two federal universities.
• Reduction in sports funding and additional training programmes.
• A freeze on international development spending.
• Cuts to national broadcaster SRG SSR.
• A 10 percent cut in departmental research spending.

The Federal Council has also announced cuts to its own finances. 300 million francs will be cut from the administration’s budget, of which 180 million will be saved through job cuts and other “personnel measures.”

Budget cuts are about "fairness" say Federal Council

"The federal government is facing major financial challenges. But it is willing to overcome these challenges," noted Rösti. "We are simply slowing down [spending]…Those who take on debt are consuming today what still has to be created and achieved in the future. This is also about fairness between the generations." Finance Minister Karin Keller-Sutter (FDP) added that she thinks “the package will not have a major impact on the population's everyday lives."

In response, a statement from FDP. The Liberals read: "Stay courageous in saving, dear Federal Council! The target is a little lower than the expert group has shown, but it is still a courageous first step." The Swiss business organisation Economiesuisse also voiced their support.

Proposed austerity measures are harmful to Switzerland, SP counters

This attitude was not universal, however, with a statement from the Social Democratic Party noting that the “massive increase in military spending is to be compensated at the expense of the population through cuts in the AHV, daycare funding, international development cooperation and climate protection." Party co-president Cédric Wermuth promised to fight the measures in parliament.

The Swiss Federal of Trade Unions added that the “harmful austerity measures” produce "surpluses at the expense of the population." They also questioned why federal austerity is being pushed through at a time when almost all Swiss cantons are posting profits.

The Green Liberals added that while they were in favour of balancing the books, the plan does so “at the expense of the future.” For their part, the Conference of Cantonal Governments argued that instead of solving the deficit, the government was simply passing the financial burden down to individual cantons.

When will the proposed budget cuts be implemented?

The Federal Council will send the measures for an extensive consultation, which will conclude in January 2025. As 40 of the measures require changes to the law, all of the cuts will be packaged together and presented as one to parliament to avoid extensive delays. 

If approved by parliament, the cuts can also be subject to a referendum. This is highly likely to happen, with the Green Party announcing on Monday that it would launch such a vote “if the plan is adopted.” If it survives both parliament and the people, the cuts will be enforced from 2027 onwards.