Ageing and climate change place a heavy burden on federal finances in the long term
Published: Tuesday, Apr 23rd 2024, 13:20
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Due to the ageing population and climate protection measures, the public financial situation is likely to remain difficult in the coming decades. A new federal government study assumes that the national debt is likely to grow enormously without countermeasures.
The report "Long-term prospects for public finances in Switzerland" published by the Federal Finance Administration (FFA) on Tuesday provides projections every four years, but not forecasts, as the federal government emphasizes. Demographic and economic developments are subject to great uncertainty.
The scenarios also assume that the fiscal rules, such as the federal debt brake, do not apply. Nevertheless, the report highlights the great need for fiscal policy action over the next 35 years. The finances of the Confederation, cantons, municipalities and social security funds will come under increasing pressure.
It is already known that the federal government is facing structural deficits of up to CHF 4 billion in the coming years, and the Federal Council wants to identify ways of tackling this before the end of the year. A corresponding working group is looking into the issue.
Sharp rise in the debt ratio
According to the report, two key structural developments, ageing and climate change, will shape financial policy in Switzerland for decades to come. "Both policy areas will pose major challenges for public budgets in the medium to long term," writes the Confederation.
If the economy and population develop as assumed, the projections show that demographic-related expenditure will increase from 17.2% of gross domestic product (GDP) to 19.8% of GDP by 2060. Without reforms, public debt would rise from the current 27% to 48% of GDP.
The need for reform is particularly pronounced at federal and cantonal level, according to the report. At federal level, AHV expenditure in particular poses a challenge - all the more so after the adoption of the popular initiative for a 13th AHV pension. Cantonal finances came under greater pressure, particularly in terms of healthcare expenditure.
Subdued economic growth
The report also estimates the long-term financial impact of climate protection measures to achieve the net zero target for the first time. Switzerland has committed to this with the Climate Protection Act.
Based on the assumptions made, the projections show that the path to net zero will primarily place a financial burden on the federal government and social security funds, as can be seen in the report. "This is because climate protection measures dampen economic growth and therefore also the growth of public revenue."
The electrification of the transport sector would also lead to a loss of revenue from mineral oil tax and the performance-related heavy vehicle charge (LSVA). However, the study assumes that these can be compensated for by replacement levies.
Study with pilot character
Increased use of subsidies in climate policy further increases the pressure on public finances. Depending on the policy scenario, the overall government debt ratio in 2060 would be 8 to 11 percentage points higher than without climate protection measures. Although no reliable estimates are yet available internationally or for Switzerland, scientists agree that the costs of climate change for public budgets will be significantly higher than the costs of climate protection measures.
The costs of climate change itself and those of adaptation measures could not be quantified due to insufficient data. For the time being, the analysis is therefore limited to the costs of climate policy.
The financial policy climate scenarios are based on a study by the Ecoplan research institute. According to the federal government, the analysis is a pilot project. Switzerland is one of the first countries in the world to carry out such an estimate.
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