Taxpayers in parts of Switzerland this year face an unusual request from fiscal authorities: please delay settling your bill until as late as possible.
Zug, the affluent canton outside Zurich, has announced it is ending discounts for early payment of tax bills. The reason? The longer it has cash on its books the more likely it will incur costs as a result of negative interest rates charged by Swiss banks. The canton calculates the move will save CHF2.5 million ($2.5 million) a year.
Its extraordinary appeal, which could be followed by other cantons, is the latest unintended consequence of steps taken by the Swiss central bank to weaken the strong franc, which is hitting export industries in the affluent Alpine economy.
A year ago the SNB gave up an attempt to cap the franc’s value against the euro in the face of European Central Bank efforts to weaken the single currency. To weaken the attractiveness of Swiss assets, the SNB has pushed official interest rates deep into negative territory, which banks are increasingly passing on to their biggest clients. Negative interest rates in effect mean depositors pay to park money at banks.
“The canton has no incentive to motivate taxpayers to make early payments,” Zug said in a statement. “On the contrary, the canton has an interest in receiving money as late as possible so it pays less negative interest.”
In a further contrast with the zeal of tax authorities elsewhere in the world, the interest rate charged on overdue Zug tax liabilities has also been cut to zero. Late payers will still risk penalties and black marks on their credit records.
Zug was not yet having to pay negative interest rates, Peter Hegglin, the canton’s finance director, told the Financial Times. But he warned many effects of negative rates were still unclear. “The next few months and years will show where the journey is leading,” he said.
Normally, Swiss taxpayers respond to incentives to make early payments. Lucerne offers an interest rate of 0.3 per cent on tax payments made before its official end-of-year deadline, a better return than can be achieved on many bank accounts. But Lucerne cut the early payment rate last year and has not ruled out further cuts, said Paul Furrer, at the canton’s tax department.
“The interest rate situation is very bad,” Mr Furrer warned. So far Lucerne was “only on the edges of the negative interest problem” but had incurred negative rates on some deposits in 2015.
Copyright The Financial Times Limited 2015