Going for Growth - Switzerland by OECD

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Switzerland GDP per capita remains one of the highest amongst OECD countries. However, growth has been sluggish since 2011 as labour productivity has been flat. Inequality is moderate as measured by both the Gini coefficient and the share of income received by the poorest. Greenhouse gas emissions are on average less than other advanced OECD countries. However, imports contain a significant amount of embedded carbon. Public sector efficiency has improved, notably in the health sector. However, containing healthcare costs remains a challenge, especially as the population ages. In September 2018, Parliament adopted a joint package of reforms to corporate income taxation which also increased funding for the pension system and will be effective from 2020. The priority is to revive labour productivity to maintain high living standards. There is room to improve skills and labour market outcomes of workers from poorer socio-economic backgrounds (especially migrants) and encourage their participation in continuing education and training. Helping women to work full-time will reduce skills shortages. Reforming public support to agriculture will boost its productivity and reduce its environmental impact. Ageing-related public spending is on the rise, making it urgent to adjust the pension system and encourage longer working lives, including through a higher retirement age and lifelong training. Growth performance, inequality and environment indicators: Switzerland Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate

A. Growth

Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio

2002-08 1.9 0.3 0.0 -0.1 0.3 1.4 0.2 1.2 0.2

2012-18 0.8 0.4 0.3 0.0 0.1 0.6 0.0 0.5 -0.1

Level

Annual variation (percentage points)

2015 29.6 (31.7)*

2013-15 0 (0)*

B. Inequality and environment

Gini coefficient3 Share of national disposable income held by the poorest 20%

GHG emissions per capita4 (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)

8.5 (7.6)*

-0.1 (0)*

2016 5.5 (10.9)* 0.1 (0.3)* 0.1

Average of levels 2010-16 6 (11.3)* 0.1 (0.3)* 0.1

C. GDP per capita is one of the highest in the OECD Gap to the upper half of OECD countries5

Per cent 40 GDP per capita

GDP per hour worked

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases. StatLink 2 https://doi.org/10.1787/888933955408

ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH ÂŠ OECD 2019

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Policy indicators: Switzerland A. The gender gap in wages is relatively high

B. Producer support to agriculture is very high

Gap as a percentage of men's median earnings¹

22 20

2010

Percentage of farm receipts,² 2017

2017 or latest available

18 16

14 12

10 8

6 4

2 0

SWITZERLAND

Advanced economies

SWITZERLAND

OECD

Source: Panel A: OECD, Gender Database; Panel B: OECD, Producer Support Estimate Database. StatLink 2 https://doi.org/10.1787/888933956282

Beyond GDP per capita: Switzerland A. Inequality is at the level of advanced economies' median Gini coefficient, 2016 or last available year¹

SVK, 24.1

SWITZERLAND, 29.6

ZAF, 63.0

Advanced economies median, 29.7

Emerging economies median, 46.2

B. Exposure to fine particulate matter is lower than in advanced economies Percentage of population exposed to PM2.5, 20172

% SWITZERLAND Advanced economies

< 10 μg/m³ 10-35 μg/m³

Emerging economies

> 35 μg/m³

World 0

100

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database. Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter. StatLink 2 https://doi.org/10.1787/888933957156 ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH © OECD 2019

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Switzerland: Going for Growth 2019 priorities Improve access and equity in education. Skills shortages, low enrolment in tertiary education and weak outcomes of pupils from disadvantaged socio-economic backgrounds (especially migrants) limit growth in the long term. •

Actions taken: From 2018, pre-apprenticeship integration training is offered to about 1000 migrants per year. Another new programme offers subsidies to companies that provide basic skills training; it aims to improve access to training for low-skilled and older workers.

•

Recommendations: Use subsidies to encourage participation in continuing education and training for groups with low participation rates. Increase public spending on early childhood education and care, especially for children from disadvantaged socio-economic backgrounds (including migrants). Improve access to tertiary education for students from lower socio-economic and immigrant backgrounds through special financial support (e.g. means-tested grants).

Reduce producer support to agriculture. Producer support to agriculture is high and multiform, with adverse effects on productivity, price levels, trade negotiations, the budget and the environment. •

Actions taken: No action taken. In November 2018, the government launched consultations on agricultural policy, which from 2022 would include better linking direct payments to environmental protection.

•

Recommendations: Reduce agricultural subsidies and make all direct payments conditional on environmental outcomes. Accelerate the pace of agricultural reform, including by moving entirely to direct payments to farmers, and by further integrating the whole food value chain in international trade. Consider introducing a tax on inputs (fertilisers) or outputs (methane from livestock) which are polluting. End farmers’ exemption from the mineral oil tax.

Reform the tax system. The prevalence of direct compared to indirect taxation impedes labour utilisation and reduces allocative efficiency and therefore productivity. •

Actions taken: A corporate tax reform was adopted by Parliament in September 2018 and will be effective from 2020. The objective is to align Switzerland’s tax system with its international commitments. The reform will abolish special tax regimes and provide equal treatment of all resident companies, including additional incentives for R&D spending. The CO2 levy increased in 2018 by CHF 12 to CHF 96 per tonne of CO2.

•

Recommendations: Increase the standard value-added tax rate, remove VAT exemptions and lower personal income taxes, taking into account the federal structure of the tax system. Remove exemptions to the CO2 levy and other green taxes.

*Encourage longer working lives. Increasing public ageing-related spending may crowd out other expenditures. The current situation generates uncertainty for workers about their retirement incomes and working lives. •

Recommendations: Set the retirement age at 65 for both genders and thereafter link it to life expectancy. Increase financial incentives to work longer before retirement. Promote healthy working lives, including via preventive health care programmes. Promote lifelong training, career planning and tailored job-search assistance to enhance workers’ resilience to change.

* New policy priorities identified in Going for Growth 2019 (with respect to Going for Growth 2017). No action can be reported for new priorities.

| 175 Facilitate full-time labour force participation of women. The cost of childcare, dissuasive secondearner taxation, weak corporate culture of gender diversity and a wage gap contribute to women’s high incidence of part-time work. •

Actions taken: In June 2017, Parliament granted an additional CHF 100 million over the next five years for subsidies to reduce childcare costs and to restructure childcare services to meet parents’ needs. In 2018 it extended a federal programme providing additional childcare places. The Parliament will vote on a proposal to increase the federal income tax allowance for child expenses from CHF 10 000 to 25 000 per year. In 2018, Parliament passed legislation introducing targets for the share of female board members of large listed companies, which will be phased in over 5-10 years and subject to a comply-or-explain requirement.

•

Recommendations: Further reduce childcare costs to improve access to affordable childcare by amending regulations to increase the range of price-quality choices available and expanding public spending on childcare in a targeted way. Shift income taxation from joint to individual income taxation, or implement equivalent measures. Create paternity leave, and consecutive parental leave to be shared between fathers and mothers.