Second meeting of the network on fiscal relations across levels of government Remarks on the reform of financial equalization and the intergovernmental grants system in Switzerland Paris, 8/9 September 2005 Roland Fischer Swiss Federal Finance

1
Second meeting of the network on fiscal relations
across levels of governmentRemarks on the
reform of financial equalization and the
intergovernmental grants system in
SwitzerlandParis, 8/9 September 2005Roland
FischerSwiss Federal Finance Administration
2
Intergovernmental transfers 2001/02 in billion
CHF (in paranthesis financial equalization)
Cantonal share of federal revenues
Purpose specific grants
2.5 (0.2)
Confederation
Cantons
Cantonal contributions to the social security
system
4.1 (0.9)
10.9 (1.3)
Total 17.5 (2.4)
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Problems

• Mingling of financial equalization and
  earmarked grants? cantons with low financial
  capacity have strong incentives to overspend?
  inefficient allocation of public funds
• High proportion of earmarked grants? cantonal
  policy increasingly depends on desicions of the
  federal government? gradual cetralization e.g.
  reduction of cantonal responsibilities
• Inadequate indicators for financial
  equalization? high tax rates lead to an
  increase of equalizing grants? reduction of tax
  rate and income disparities is impaired

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The reform of financial equalization and task
allocation between the Confederation and the
cantons (NFA)
Reform of task allocation
Financial equalization
New system with new indicators, entirely based on
non-earmarked horizontal and vertical transfers
Disentanglement of resposibilities clear
assignement to either the Confederation or the
cantons
Performance oriented financing and block grants
for the remaining shared tasks
New institutional framework for intercantonal
cooperation
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Intergovernmental transfers after NFA reform in
billion CHF (in paranthesis financial
equalization)
Cantonal share of federal revenues
Purpose specific grants
New financial equalization system
Confederation
Cantons
2.6 (0.0)
7.8 (0.0)
3.5 (3.5)
Total 13.9 (3.5)
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New indicators

1. Vertical and horizontal ressource equalization
2. Geographic-topographic cost compensation
3. Sozio-demographic cost compensation

income
net assets
profits
aggregate tax base
ressource index
Structural indicators based on density, elevation
and topographic location of settlements
Structural indicators based on the share of the
poor, the old and immigrants of total population
as well as on the degree of urbanization
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Timetable of NFA

• October 2003 Adoption of the constitutional
  amendments and the new Financial Equalization Act
  by Parliament
• November 2004 Referendum on the constitutional
  amendments adopted by a majority of 64 of votes
• September 2005 Second dispatch to Parliament
  amendments to 30 specific federal laws following
  the constitutional changes with respect to the
  reallocation of tasks
• September 2006 Third dispatch to Parliament
  remuneration of the new financial equalization
  system for the first four-year period (2008-2012)
• January 2008NFA is expected to come into force