The debt brake turns 20

07.09.2023

The debt brake was introduced in Switzerland in 2003, and since then, it has served as an anchor for the federal government's fiscal policy. At an event to mark this fiscal rule's 20th anniversary, the Federal Finance Administration, together with prominent figures from political, administrative and academic circles, took a look at its past, present and future. A new FFA working paper also provides an overview of the effectiveness of fiscal rules based on international research literature.

The federal government has been applying the debt brake for 20 years. This fiscal rule is an efficient mechanism for managing total federal expenditure. It uses binding requirements to set a framework for prioritising expenditure and strengthens medium-term financial planning, thereby imposing discipline on Parliament and the administration. The debt brake provides for exceptions in exceptional situations and takes account of the economic cycle.

Why a debt brake?

The 1990s were difficult times for the federal finances. In the space of a few years, billions in deficits led to a sharp increase in debt, which was exacerbated by the funding of federal pension funds and enterprises affiliated with the Confederation – the call for a concrete, effective fiscal rule grew louder. In 2001, the electorate approved the corresponding constitutional article with a "yes" vote of 84.7%, and in 2003 the debt brake was introduced. The federal finances have improved under this regime. Thanks to the favourable economic trend and compliance with the debt brake, federal debt was reduced by around CHF 27 billion between 2003 and 2019. Although debt increased during the COVID-19 pandemic, Switzerland is currently in very good shape by international standards, with a debt ratio of less than 30% of gross domestic product. The debt brake has helped to boost Switzerland's resilience to crises.

Kaspar Villiger: the debt brake has been "a resounding success"

On 5 September 2023, the Federal Finance Administration, together with prominent figures from political, administrative and academic circles, paid tribute to this fiscal policy achievement, but also took a critical look at it. The debt brake's "father", former Federal Councillor Kaspar Villiger, emphasised that the debt brake had been "a resounding success". Since the introduction of the debt brake, Switzerland has experienced "a phase of prosperity that has attracted worldwide attention and enjoys a level of financial stability that is envied". The current finance minister, Karin Keller-Sutter, added that many fears had not materialised. The debt brake did not inhibit investments, and it also proved its worth in crisis situations such as the COVID-19 pandemic.

New working paper provides an overview of the effectiveness of fiscal rules

The Federal Finance Administration used the anniversary as an opportunity to review the international research literature on the impact of fiscal rules in a working paper. It focused on the following questions: Do fiscal rules contribute to improved budget balances, lower debt and a stabilisation of public expenditure? Do fiscal rules improve the accuracy of budget forecasts and the financing conditions for public borrowing? Do fiscal rules tend to crowd out public investment, and do they have a procyclical effect? Overall, empirical research paints a largely positive picture of the effect of fiscal rules. However, the fiscal rules' design is crucial in this respect.

New brochure with key information on the debt brake

What exactly is the debt brake? A brochure explains how this pivotal expenditure rule for the federal budget works. The new edition is now available free of charge in the FOBL webshop.