1. 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 Roland Fischer Swiss 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)

3. 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

4. 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

5. 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)

6. 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

7. 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 ( )
January 2008: NFA is expected to come into force