A recent study by the Swiss Association of Cities (SSV) and the auditing firm PwC shows how COVID-19 will burden public budgets. According to the study, tax revenues will drop significantly in 2021 and many cities and municipalities will have to take on debt.
It will be a lean period for cantons and municipalities as far as tax revenues are concerned, with a simultaneous increase in expenditure. At least that is the assessment of the 15 cantons and 77 municipalities or cities that participated in the survey. After a slump in the current year, the crisis is expected to end in 2022, but the question is how long the aftermath will be felt.
Additional costs, especially in the health and social sectors
The study shows that most cities and municipalities will have to bear significant additional costs in the health and care sector as well as in social services in 2020 and 2021. In addition, there are costs arising from the direct pandemic response – for example, crisis teams or personnel for hygiene concepts. And it also shows that these burdens are declining much faster at the cantonal level than at the city and municipal level. There, debt growth of 72 percent is expected.
Another factor, according to the study, is the tax reform (STAF) that came into force last year. For example, corporate tax revenues have already fallen in 2020 compared to 2019. The municipalities would feel this effect differently – due to the varying implementation of the cantons. In principle, however, the effect will be clear everywhere.
General tax increases are not at all expedient. Temporarily, I can imagine an increase in value-added tax. But on a very limited scale.
Ernst Stocker, Cantonal Councillor, Finance Director of the Canton of Zurich and President of the Conference of Finance Directors
Stabilise in the short and medium term
Interesting is the information given by the study participants with regard to their stabilisation measures. The majority of cities and municipalities focus on short- and medium-term stabilisation measures (36% and 51%) – only 11% plan for the long term and pay particular attention to tax rates and investments.