2019 extrapolation


Why is the Confederation posting a higher surplus than budgeted?

The first extrapolation for 2019 is available. The seven most important questions and answers on this.


1.    Why is the Confederation posting a significantly higher surplus than budgeted?

There are two reasons for the improvement: higher receipts and lower expenditure. Although their divergence from the budget is only marginal in percentage terms (receipts 0.9% higher than budgeted, expenditure 1.3% lower), it quickly results in very high amounts in Swiss francs when considering a total budget of over CHF 70 billion.

The significantly higher receipts are, so to speak, an "after-effect" of the good economic situation in 2018: because the economy grew much more vigorously than expected and profits were higher, the tax receipts that are now flowing to the Confederation with the normal time lag are also higher.

In addition, the Confederation received extraordinary receipts that could not be planned. These receipts (mainly from the auctioning of mobile radio licenses) amounted to almost half a billion Swiss francs (490 mn).

Regarding expenditure, it is once again apparent that the Administration uses its budgeted funds sparingly and does not try to go on a December spending spree to use them up; instead, it leaves unutilized credits, which are likely to amount to CHF 1.5 billion in 2019. Likewise, supplements and other credit increases are obtained only if necessary. The additional funding requirement is estimated to be CHF 0.6 billion in 2019. The two factors combined result in the expected budget underrun of CHF 0.9 billion.

2.    But we already knew about the economic upswing. Why did the Confederation underestimate tax receipts in the 2019 budget?

Relatively robust growth was already expected in the 2019 budget: an increase of 5.8% was anticipated for direct federal tax in 2019, and a rise of 14.1% for withholding tax. However, the extrapolation now shows that these growth forecasts were probably still too cautious. The reason for this is that 2018 was better than budgeted, and so is 2019. In contrast, VAT is up less than anticipated.

Table 1: Budgeted and expected tax receipt growth rates
in %
Budgeted growth in 2019 budget vs. 2018 budget Expected growth according to 2019 extrapolation (vs. 2018 bdg.)
Direct federal tax 5,8 8,5
Withholding tax 14,1 21,2
VAT 3,0 1,9

Figure 1: Direct federal tax and withholding tax trends since 2009 (indexed)

3.    Why are VAT receipts lower than budgeted according to the extrapolation?

The shortfall of CHF 240 million for these receipts reflects the weakening of the economy this year. While the 2019 budget was still based on nominal GDP growth of 2.7%, the expert group has now revised its latest estimate to 1.8%. Such a change is directly reflected in the VAT levied on products sold and services provided. 2018 was already worse than expected.

4.    Why is it so difficult to estimate withholding tax?

An extrapolation is not prepared for withholding tax, as a stable basis does not exist. The volatility of withholding tax (both incoming payments and refunds) on a monthly basis means that point forecasts for the annual result are associated with huge uncertainty.

Against this background, the same estimation method is used for the extrapolation as for budgeting. This statistical model makes a correction for outliers in the annual results and takes the trend into account. The estimate is updated annually with the new value from the financial statements. The model estimate thus corresponds to the trend for withholding tax receipts and not to a point forecast based on monthly receipts.

5.    Why is withholding tax so volatile?

First, because corporate profits fluctuate considerably. Second, profit distributions by companies are in turn volatile. Finally, special factors play a certain role: striking individual cases can severely distort receipts. Moreover, the negative interest rate environment can lead to refund requests being postponed as long as possible within the three-year time frame. Combined, all of these factors mean that withholding tax receipts are subject to major fluctuations.

6.    Is it incorrect to think that receipt estimates have deteriorated recently?

Yes, that is a false impression. The quality of receipt estimates has improved significantly relative to previous years. On average in recent years (2013-2018), receipts were underestimated by 0.7%, which is unlikely to be significant given the high volatility of withholding tax in particular (2007–2012: 4.0%).

Figure 2: Budget deviation over time, in CHF mn

7.    Is the Confederation chronically overly pessimistic when budgeting?

The surpluses in the state financial statements can be explained primarily by forecasting errors in the case of receipts and the economy, as well as by the overestimation of expenditure (budget underruns).

Receipt estimate errors are unavoidable, as the trend of receipts is subject to relatively sharp fluctuations. However, higher and lower receipts due to forecasting errors balance each other out over time. This has been ensured for withholding tax as well since the introduction of the new estimation model for withholding tax in the 2012 budget.

In terms of expenditure, budget underruns are part and parcel of the current system. As the budgetary credits approved by Parliament may not be exceeded, the administrative units tend to be cautious when budgeting, as well as economical with the use of funds. These budget underruns thus occur systematically.

Last modification 14.08.2019

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