The right wing economic think tank, Economiesuisse, has judged the time right to publish an academic study which explains the advantages of Swiss style tax competition among the Cantons and warns against tax harmonization policies and the creeping redistibutive aspects of the Swiss 'Finanzausgleich' system - a system for redistributing tax revenues from rich to poor Cantons. A study of Prof. Lars P. Feld, Professor of economics at Heidelberg university, shows that tax harmonization is 'bad business' for Switzerland and will result in increases in taxes overall.
Reinforcement of tax harmonization policies has been part of the Swiss Social Democrat Party (SP) platform since 2006, and recent initiatives on flat taxes, following a successful referendum in Zurich, propose to move power on tax policy away from the Cantons towards the centre.
The SP argues in favour of a minimum income tax rate of 22% for single individuals earning more than CHF250,000 per year, minimum property taxes of 5 per mille on wealth exceeding CHF2m. It also calls for an end to regressive taxation, for example income and wealth tax rates that reduce as total income/wealth increases.
Professor Feld's study states that tax competition is an integral part of Swiss local democratic culture and expounds its advantages: variety, choice, efficiency and innovation in the Cantons - the competition for quality among the Cantons benefits everyone in the end according to the study. The study criticized the SP calls for 'fair taxes' and 'stop the abuse caused by tax competition' as an attack on the Swiss system of democracy and federalism.
A common criticism of tax competition is that it causes a 'race to the bottom' - depleting public revenues progressively at the expense of adequate public services - Feld's study does not bear this out - it shows from comparative experience in the Swiss Cantons, that tax and service competition has primarily positive effects on the provision of efficient public services. Moreover the Swiss experience shows that tax revenues of the Centre, the Cantons and the local communities during the period of tax competition have grown at a faster rate than the economy. According to Feld's study, the adverse effects to the tax burden from the SP proposals would not only affect the richest but also the main rump of the middle classes. Tax rates would have to increase in more than half the Cantons.
According to Christoph Schaltegger, a director of Economiesuisse, tax competition in Switzerland has already been compromised for some time by the new 'Finanzausgleich' , which seeks to even out disparities of wealth between the richer and poorer Cantons. Economiesuisse claims that, in the globalized economy a flexible and adaptable local tax policy is increasingly important and this can be best applied at Cantonal level - 'if you block that, then you block out an essential part of the Swiss ethos'.
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