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 Administration

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)

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

The reform of financial equalization and task allocation between the Confederation and the cantons (NFA) Financial equalization Reform of task allocation 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

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)

New indicators Vertical and horizontal ressource equalization Geographic-topographic cost compensation 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

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 2008: NFA is expected to come into force