Decade of debt brake given positive marks

The debt brake requires any new spending or tax cuts to be accompanied by an increase in corresponding revenues or cuts to programmes Keystone

The debt brake, introduced ten years ago, has made it possible to balance the government’s finances, reduce debt and also apply a fiscal policy attuned to the economic cycle during the financial and debt crisis, according to a government report.

This content was published on November 29, 2013 - 14:55 and agencies

Introduced following a nationwide ballot, the debt brake requires federal spending to be linked to revenues in the budget process – any new spending or tax cuts must be accompanied by an increase in corresponding revenues or cuts to programmes.

In the report, published on Friday, the government said federal finances had developed positively under the debt brake.

After it was first applied to the 2003 budget, “the surprisingly good economic development and fiscal discipline under the debt brake made it possible to reduce debt from CHF130 billion ($144 billion) in 2005 to CHF112 billion in 2012”.

At 19%, the federal debt ratio is currently at around the same level as in 1994.

The government said that thanks to the debt brake, fiscal policy had also become more consistent and more in line with the economic situation, “as cyclical fluctuations in receipts do not have repercussions for expenditure”.

The debt brake, it added, permitted a deficit during a recession and required a surplus when the economy was booming.

‘Efficient fiscal rule’

The report’s authors concluded that the debt brake had turned out to be an “efficient fiscal rule for managing the budget. It has proved its worth and is thus widely accepted”.

They warned, however, that it could not solve long-term structural problems such as the ageing of the population and the implications of this for social security funds.

Challenges of this kind needed to be tackled by means of reforms in the individual areas concerned, they said.

“By contrast, a further reduction in the federal debt ratio can provide future generations with the best possible starting point for tackling the problems of the future.”

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