Faced with deficits of several billion francs a year, the Federal Council in Switzerland has announced how it plans to balance the books in the future. Here’s what the Swiss government is planning to do, and how it will impact you.

Update: The Federal Council has now decided to move forward with 60 cost-cutting measures, impacting everything from childcare and transport to pensions. To find out how this will impact you, check out our guide to the new austerity measures in Switzerland. 

Swiss federal government faces a billion-franc deficit

Speaking at a press conference, an external commission of experts announced on behalf of the Federal Council how it plans to cut the federal deficit. According to the government, the country faces a budget deficit of "three billion francs a year in the coming years", well above what the government is allowed to spend through Switzerland’s debt brake mechanism.

At the conference, Finance Minister Karin Keller-Sutter (FDP) explained that the sudden rise in the deficit can be blamed on two main factors. These are the government’s commitment to increase spending on the military to 1 percent of GDP by 2030, and the rising cost of sustaining the Swiss pension system.

The new budget cuts in Switzerland explained

To reduce the deficit, the commission and the Federal Council laid out 70 measures designed to cut budgets across the government by 5 billion francs a year. Here are some of the main proposals:

Scrapping federal childcare subsidies

Starting with families, the commission proposed that it gives Swiss cantons - which for the most part are in better financial health than the federal government - more responsibility for social services. The most important of which is scrapping all federal subsidies for childcare services, leaving it exclusively up to each region to subsidise care. This measure is expected to save 900 million francs by 2030.

Plans to tie AHV pensions to economic growth instead of inflation

Next, the government has proposed cutting how much it spends on maintaining first-pillar pensions (AHV / OASI). The government hopes to link further spending on AHV to economic growth rather than inflation, meaning that the first pillar would no longer be tied to rising costs. This would save 289 million francs by 2030.

Cuts to road and railway spending in Switzerland

Next, the Federal Council is proposing significant reforms to the railways and the road and motorway network in Switzerland. The commission has argued that money should be spent on repairing current public transport and road systems and that planned rail expansions should be cut down significantly.

They are also asking to cut federal subsidies for public transport tickets by 5 percent and reduce spending on freight and night trains. They also called on regional transport providers to raise ticket prices.

Eliminate tax incentives for Swiss pensions

For taxes, the federal government will look to eliminate all tax benefits associated with withdrawing lump sums from second and third-pillar pensions. This should help boost funds by around 200 million francs a year.

Cuts to climate subsidies in Switzerland

There are also major plans afoot when it comes to meeting Switzerland’s climate goals. The commission recommended scrapping climate subsidies such as those funding companies to replace their heating systems with climate-friendly heat pumps. 

Instead, new taxes on carbon and emissions would provide a new revenue stream for the government and coax more firms and households into making green investments. This would add 435 million francs in revenue by 2030.

What other budget cuts are being planned?

Some of the other cost-saving measures include:

• Reducing federal subsidies for basic health insurance, which would be replaced by cantonal funding (80 million franc-saving by 2030).
• Limiting the salaries of civil servants to average wages in the private sector, cutting jobs and placing a moratorium on employing new federal workers (300 million francs).
• Reducing the duration of social payments for refugees and asylum seekers from seven to four years (500 million francs).
• Doubling tuition fees for Swiss universities for citizens, and quadrupling fees for international students.
• Scrapping federal subsidies for media outlets.
• Reducing aid to Switzerland Tourism and no longer managing the Red Cross Museum in Geneva.
• Creating an ongoing review of military spending.
• Reducing subsidies to international organisations and sports clubs.

Finally, if these measures are not enough to balance the books, the commission proposed standardising value-added tax into a single rate of 6,8 percent. While this would reduce the cost of some goods, goods that are charged a 2,6 percent rate of VAT (food, books, water) would see their prices soar.

Speaking to NZZ am Sonntag, the head of the panel of experts, Serge Gaillard, defended the plans, arguing that "you don’t make friends with austerity.” He said that the group had analysed over 300 different money-saving measures before releasing their list, claiming that the plans would achieve savings “without the world coming to an end”.

Mixed reactions to the new Swiss austerity plan

The announcement of such a radical programme of savings was met with equal parts acceptance and fury in parliament. On the one hand, FDP. The Liberals and the Swiss People’s Party threw their weight behind the plan, with the latter suggesting that the government should go further by cutting asylum, development and cultural spending.

On the other, the Social Democratic Party wrote in a statement that the plan was a “frontal attack on social Switzerland”, adding that the commission had set the wrong priorities. SP co-president Cédric Wermuth added that the proposals would “set Switzerland back years” when it came to climate protections, equality and purchasing power. The Green Party added that savings should instead be made by cutting military expenditure.

Others were more measured in their response, with the Green Liberal Party writing that it was good that they were “making a wide range of savings proposals,” but questioned whether Switzerland should revise the debt brake system to give the government more spending power. The Centre Party argued that a new plan should be drafted that increases revenues rather than cuts services.

The plan was also given a thumbs down by employers and unions, with employers group Travail Suisse writing that it "firmly rejects the federal government's radical austerity measures” which are "absolutely unsustainable and harmful to the entire population." The Swiss Federation of Trade Unions added that a new “financial policy is needed that is not against the population, but for it."

Federal budget cuts in Switzerland: What happens next?

With radical plans like these a rare occurrence in Switzerland, many may be wondering whether the new austerity plan will actually be made a reality. The Federal Council confirmed that a consultation period will follow the announcement, where cantons, political parties and other organisations will have their say.

The Federal Council will then progress the proposals it wishes to implement, with the aim of getting the cuts through by 2026.

Will the people be given a say on the cuts?

A large number of the 70 cost-saving measures will require amendments to both cantonal and federal constitutions, meaning most changes will have to be made into referendums. With both unions and employers signalling their opposition, it is unlikely that any of the most radical measures will be passed without the consent of the voting public.

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