Monetary policy has been expansionary since the financial crisis. Since late 2014, negative policy interest rates have been effective in boosting inflation and limiting capital inflows associated with the Swiss franc’s safe‑haven status. However, financial risks from a search for yield and the misallocation of capital are building up. Mortgage lending and apartment prices continue to rise, albeit at a slower pace, but vacancy rates are also rising. As excess capacity is disappearing and inflation is starting to rise, the central bank is projected to begin raising its policy rate in the second half of 2019. Advance communication on the gradual withdrawal of stimulus will be important to avoid potentially disruptive market surprises.
The government’s fiscal stance is projected to become mildly expansionary. High withholding tax receipts underpinned the 2017 budget surplus, due to exceptionally high dividends and low refund claims, because negative interest rates are a disincentive to claim refunds. As those net revenues unwind, the fiscal surplus will gradually decrease. In September, the parliament voted for a joint corporate taxation and pension reform, which might, however, be blocked by a possible referendum in 2019. It would add revenues to the pension scheme from 2020 via an increase in social contributions and larger central government transfers. Nonetheless, further reform, such as equalising the retirement age for men and women and linking it to life expectancy, is urgent as population ageing worsens the pension system’s financial position. The corporate income tax reform aims to align the regime with Switzerland’s international commitments and would remove multinationals’ special tax treatment by 2020.
Productivity growth has languished over the past decade. The proposed increase in tax credits for childcare expenses should encourage more full‑time female employment. That would expand women’s lifetime opportunities, raise labour supply, improve productivity, and help prolong the expansion. Reforms to make childcare more affordable for lower‑income households would boost growth and make it more inclusive.
