When a country’s finances are healthy, it is never by chance, but the result of a forward-looking and effective political leadership.
Since 2003, the Swiss Confederation has consistently posted annual budget surpluses of several billion francs. Swiss public debt stood at less than 40% of GDP before COVID-19, and the pandemic did not undermine the solidity of the Swiss economy.
Healthy public finances
When a country’s finances are healthy, it is never by chance, but the result of forward-looking and effective policies. The history of Swiss economic policy helps us understand why Switzerland’s finances are so sound. Let us refer to recent history. It all began after 2001 (the 9/11 crisis). Swiss policymakers debated the need to curb public debt, as the financial situation was deteriorating.
It should never be forgotten that in German the feminine noun “Schuld” refers both to debt and guilt, and in Switzerland (as in Germany) this dual meaning is well understood, so much so that a unique law was enacted at the federal level, unparalleled worldwide. In 2001, with the approval of 85% of voters, a new federal law called the “Debt Brake” was introduced.
The law establishes a mechanism for controlling the federal budget, enshrined in the Constitution, designed to prevent structural deficits and, consequently, an increase in public debt.
Since its introduction in 2003, the Swiss Confederation has consistently posted annual budget surpluses of several billion francs, structural surpluses that have allowed public debt to be reduced year after year, now standing at less than 40% of GDP. No other democratic country with a liberal economy has achieved such results.
At the same time, the federal government has supported the most peripheral cantons through a careful system of financial equalization. It is this forward-looking political approach that laid the foundation for Switzerland’s comprehensive COVID-19 aid package for businesses and workers.
Evolution of the public debt-to-GDP ratio from 1990 to today.
Source: IMF.
Aid amounting to nearly 60 billion CHF for a nation of 8.5 million inhabitants, an effort equivalent to approximately 10% of GDP!
The concept of debt/responsibility re-emerged with the COVID-19 loan program, with the Confederation allocating CHF 40 billion in immediate financial aid (the famous single-page document, including all conditions), while the Swiss economy requested only CHF 15 billion (data as of the end of May 2020). This reflects a strong sense of responsibility among companies, which appeared well-capitalized to face the post-COVID crisis.
At the same time, important signals typical of a liberal economy like Switzerland’s became evident: the state cannot and should never replace the economy and its fundamental economic rules. The Swiss economy needed only temporary and substantial support to restart and regain its cruising speed. By doing so, it was possible to look to the future with confidence.
Both during the COVID-19 emergency and in current periods of international tension, the role of the state in the economy has increased compared to the past, and the measures taken by the Confederation represent a strategic and developmental advantage for the entire Swiss economy.