In 2004 Swiss citizens took a significant step to further develop federalism by casting a defiant YES vote in the referendum for the reorganization of financial compensation and the division of fiscal responsibilities between the Swiss Confederation and the cantons (NFA- Neugestaltung des Finanzausgleichs). Despite much progress over the past decade, not all the objectives have been completely achieved. Some of the deficiencies of past fiscal policies are still the excessive centralization and the federal government’s strong bureaucratic grip, which increasingly constricts the cantons’ authority to regulate tax rates. Additionally, the intercantonal fiscal transfers are debated emotionally, without full regard for objective and rational criteria for redistribution. In this new “avenir debate”, our researchers, Lukas Rühli and Natanael Rother, argue the case for strengthening competition between the cantons with a reformed NFA 2 policy. As suggested, the de-politicization of cantonal fiscal transfers could defuse the federal debates between net-recipient and net-contributing cantons. Most importantly, simplifying the state’s bureaucratic divisions between the federal government and the cantons would promote more efficient use of taxpayers’ money.

Adjust fiscal transfers to actual economic disparities

The current intercantonal fiscal transfer is increasingly unbalanced between donor and recipient cantons. An underlying cause of this development is the growth in aggregate value of federal transfers despite the declining economic disparities between cantons. As a first measure, the allocation of federal resource should reflect the actual economic inequalities between the cantons. This initial step would de-politicise the debates about the optimal allocation of federal resources. It would also be important to gradually reduce the 87.8% (2017) minimum level of federal funding for the economically weakest canton over several years, eventually settling at the 85% level prescribed by federal law.

Decentralization strategy in favour of the cantons

With the first NFA reform simplifying only 40% of the joint fiscal responsibilities between the federal government and the cantons, there is still much work to be done. With the remaining 17 shared responsibilities, many fiscal duties continue to be administered by both levels of government. This results in an inefficient process that encourages political actors at cantonal levels to influence the global policy frame, with the ultimate aim of paying in as little as possible and influencing decisions as much as possible. Neither the federal government nor the cantons themselves bear the full responsibility for their decisions. Moreover, the canton’ aversion to financial overloads has led to further centralization of the fiscal budget.

Through deliberate separation of legislative powers in the area of ​​education, health insurance premiums and regional public transport, the cantons would enjoy greater room for political maneuvering. On the whole, Avenir Suisse’s proposal for the separation of state duties would shift an expenditure of CHF 10 billion to the cantons. In order to finance this shift, Avenir Suisse proposes a reformed “automatic tax exchange mechanism,” which should be defined according to the federal constitution, law and regulation, preventing any further political disputes.