OECD urges further economic reforms in Switzerland

The Organisation for Economic Cooperation and Development expresses optimism about the prospects for the Swiss economy but urges further liberalisation in certain industries and proposes a new concept for monetary policy.

The Organisation for Economic Cooperation and Development expresses optimism about the prospects for the Swiss economy but urges further liberalisation in certain industries and proposes a new concept for monetary policy.

In its annual report on the state of the Swiss economy released Thursday, the OECD said Gross Domestic Product rose to 2.1 percent in 1998 – the best performance in eight years.

The report notes that economic growth has indeed slowed down this year but will very likely pick up again next year with GDP forecast at 1.2 percent.

The OECD praises the fact that unemployment has been further reduced and says it expects the jobless figure to fall to 2.7 percent by next year.

Should the Swiss franc remain as stable as it is now, then inflation will likely remain under 1 percent until the end of the millennium, according to the report.

The OECD particularly praises the government’s attempts to balance the federal budget as well as reforms to the unemployment insurance programme , which “tightened benefit eligibility conditions and emphasised active labour market programmes.”

However, the organisation also calls for further reforms, such as:

— Take firmer measures to make sure that new legislation on competitiveness, such as anti-cartel laws, are strictly implemented.

— Step up the liberalisation of the telecommunications and electricity markets.

— Increase flexibility in the labour market and relax the “rigid and restrictive rules for shop opening hours.”

With regard to taxation, the OECD report praises the stability of tax policies.

“The overall tax burden in Switzerland is moderate by international comparison and it is difficult to point to serious under-funding of public activities,” the report says.
Suggesting areas for tax reforms, the OECD says that cantons (states) should implement a flat-rate tax on corporate profits – a system which some cantons have already implemented, while others have a progressive rate.

The OECD further calls on the Swiss National Bank to “define a new concept for monetary policy in Switzerland.”
“The SNB should choose a monetary policy strategy based on a clear definition of price stability and a strong commitment to it. This should rely on the use of several indicators, in particular M3, and inflation forecasts,” the OECD says.

It adds that this would require few changes to the current operation of monetary policy as the SNB already closely monitors a broad set of indicators.

The Swiss economics and finance ministries welcomed the report, describing it as a fair assessment of the country’s economic efforts and the government’s reform policies.


From staff and wire reports.