Swiss Fiscal Reform Will Likely Reduce Tax Differences Between Cantons
by Ulrika Lomas, Tax-News.com, Brussels
07 April 2004

A report published yesterday by the ratings agency Standard & Poor’s has concluded that Switzerland’s planned overhaul of the fiscal equalization system will likely reduce the differences in tax burden between each canton.

"Under this system, due to go into effect in 2007, enhanced mutual support and lower exposure of budgetary performance to local economic strength could gain in significance as rating factors," forecasts Standard & Poor's credit analyst, Christian Esters.

"Nevertheless, the expected budget effects on individual cantons differ and specific rating impact on individual Swiss cantons cannot be evaluated at this stage,” he added.

Swiss cantons currently have among the highest level of taxation powers and fiscal autonomy of subsovereign governments worldwide, the S&P report, entitled "Swiss Cantons: The Freedom and Fetters of Fiscal Autonomy" noted. Consequently, several cantons wield a significant amount of fiscal flexibility, the report stated.

However, the S&P analysis found that tax raising abilities can be constrained by a number of factors such as tax competition between cantons, and the need of many cantons to submit changes in the tax multiplier to referendum.

The report also notes that the tax burden can vary greatly between cantons, and concluded that there is an inverse link between a high tax burden and a canton’s fiscal flexibility.

Standard & Poor's currently rates nine of the 26 cantons, four of which are rated for their own debt issuance, including: Aargau (AA+/Stable/A-1+), Vaud (A/Stable/--), and Zurich (AAA/Stable/--), and the Republic and Canton of Geneva (A/Stable/--). Another five are only rated in connection with their guarantee for a public sector bank.

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