Switzerland tackles spending: EP27 relief package is causing a stir!

Switzerland tackles spending: EP27 relief package is causing a stir!

Switzerland is currently facing enormous fiscal policy challenges, driven in part by demographic changes and ongoing military security needs. However, in contrast to countries such as France, Germany, the USA and Italy, Switzerland sees itself bound by the debt brake, which states that the federal government can only spend as much as it takes in. This regulation forces Switzerland to strictly control its spending, which is reflected in the newly launched EP27 relief package, which aims to reduce spending by almost 3 billion francs by 2028. This corresponds to a saving of 3 percent on a total budget of 98 billion francs, like Economiesuisse reported.

The EP27 is encountering political resistance, but the need for budgetary discipline is unmistakable. High debts lead to higher interest burdens, which limit Switzerland's financial flexibility. Countries with high levels of debt, such as France and the US, spend a large proportion of their income on debt interest, which in turn affects investment in key areas such as education, infrastructure and security. In Switzerland, on the other hand, the low level of debt allows for flexible setting of financial priorities.

Intergenerational justice and the debt brake

The debate about the debt rule also revolves around the issue of intergenerational justice. The current debt policy puts a burden on future generations who will have to repay the debts taken on today. A sustainable financial policy not only promotes the trust of the population, investors and rating agencies, but is also crucial for the stability of the state. It is evident that the debt brake helps Switzerland to prevent a potential debt spiral and to set the necessary priorities in order to ensure that national finances remain stable even in times of crisis.

In order to master the financial challenges in a future-oriented manner, the debt brake reform approach contains proposals that differentiate between public consumption and necessary investments. Reform could, among other things, exempt public sector salary increases from debt limits and increase public investments that promote economic performance and long-term prosperity. Studies show that 100 euros invested in education can lead to additional tax revenue of 200 to 300 euros. Therefore, critics are pushing for the reintroduction of a Golden Rule that ensures that net investment must remain permanently positive to guarantee capital stock and competitiveness, like that DIW analyzed.

With regard to the future performance of the state, challenges such as demographic change and the accelerated pace of digitalization must also be taken into account. Proper management of investments is necessary to eliminate the existing backlog in the public capital stock of several hundred billion euros. Proposals also include a limit on public consumption spending, while social spending such as pensions should be excluded.

The current financial conditions are acceptable because the federal government is currently receiving good conditions for debt management. However, an increase in interest or debt could significantly increase the interest burden and limit Switzerland's financial options. Ultimately, it is important to develop a comprehensive and transparent approach that enables Switzerland to both comply with the debt brake and invest in the future.