Where taxes are particularly low, housing costs are often particularly high. According to evaluations by Credit Suisse, classic low-tax municipalities sometimes perform worse than the average Swiss municipality in terms of the total costs for many private households.
Taxes may be low in Zug, but housing, childcare and health insurance all make a big difference.
Tax competition is part of Swiss federalism – between the cantons and between the municipalities. Even taking direct federal tax into account, the differences in the income tax burden are large. The bandwidth of the top tax rates currently ranges from a good 20 percent (various municipalities in the canton of Schwyz) to 46 percent (various municipalities in the canton of Geneva). According to the household surveys of the federal statisticians, direct taxes account for an average of just under 12 percent of private household expenditure.
But the taxes are far from everything, even from the point of view of the wallet. An overall view of the financial residential attractiveness of the municipalities in Switzerland allows a record Credit Suisse for 2021. In addition to income and wealth taxes, the bank’s economists also took into account the costs of housing, health insurance premiums, childcare and commuting. They did this for five household types: single, childless married couples, married couples with two children, families with two children cared for externally, and retired couples. The question examined: How much disposable income do these households in various income brackets from 40,000 to 180,000 francs have after deducting the costs mentioned? From the mean values of the various income classes, the bank economists have calculated an index of the financial attractiveness of housing overall and by household type for each municipality.
Heavy housing costs
On request, the CS economists evaluated the financial residential attractiveness of six municipalities which, according to the NZZ tax burden index, appear at the top or bottom of the list of municipalities with at least 10,000 inhabitants. The low-tax communities of Zug, Baar (ZG) and Freienbach (SZ) as well as the high-tax communities of Lausanne (VD), Thun (BE) and Val-de-Travers (NE) were examined in detail. Two findings in particular stand out here. On the one hand, the three low-tax municipalities mentioned appear financially less attractive on average for the household types and income brackets considered than the average of all Swiss municipalities. And on the other hand, the high-tax community of Val-de-Travers performs significantly better than the low-tax locations mentioned and also than the national average (see chart).
For example, a family with two children cared for by others, an income of 110,000 francs and assets of 200,000 francs after deducting the costs mentioned in Val-de-Travers has a freely disposable income of 47,600 francs. In Zug, on the other hand, only 35,300 francs remain. The Zug tax advantage is overcompensated here by cost disadvantages, namely with regard to housing, childcare and health insurance. “In general, for many people with lower incomes and in the middle class, it is not worth it from a purely financial point of view to move to low-tax locations like Zug,” says Credit Suisse economist Jan Schüpbach.
Housing costs are an important factor. On average, these make up around 11 to 12 percent of the total expenditure of private households. If taxes go down, real estate values tend to go up and so do housing costs. It is unclear what proportion of the tax savings will be offset by increases in real estate prices. an older one overview of the Federal Finance Administration (2013) on the research literature showed a range of estimates from under 10 to over 50 percent. A Swiss study from 2017 identified large differences depending on the price segment and generally higher pass-through rates for properties sold compared to rental apartments. A research paper The Federal Tax Administration of 2013 suggested that moving to a municipality with a lower tax burden up to an annual income of around CHF 110,000 would be compensated or even overcompensated by higher housing costs alone.
A middle-class family with two children who are looked after by others makes ends meet in Val-de-Travers despite high taxes – not least because housing is cheap.
Fiscal tourism in numbers
According to analyzes by Marcus Roller (University of Bern) and Kurt Schmidheiny (University of Basel), tax tourism is statistically clearly visible from an annual income of a few hundred thousand francs; the effective average tax burden in this income group is several percentage points lower than it would be if the group were distributed proportionally to the municipalities. The difference is around 2 to 3 percentage points for incomes of around CHF 500,000 and 4 to 6 percentage points for incomes of more than CHF 5 million.
The Economic Research Center of ETH Zurich has 2019 examined, to what extent cantons with a low tax burden for income millionaires also have relatively low taxes for lower income groups. The result: the statistical relationship is consistently positive for annual incomes of more than 70,000 francs, but below that it can tip over. When comparing the tax burden for an income of CHF 1 million with the burden for an income of CHF 12,500, the correlation is even significantly negative. To put it plainly: tax competition primarily affects the best customers – the high earners.
Cities at a cost disadvantage
However, the tax burden is by no means the only factor behind the cost of living. Living in urban centers and agglomerations is typically significantly more expensive than in rural areas – despite the high tax burden in the cities. Two tendencies stand out when it comes to health insurance premiums: cities are more expensive than rural areas, and it is more expensive in the west than in the east; the cantons of French-speaking Switzerland compensate for this with lower premiums for low earners. Meanwhile, childcare costs tend to be lower in western Switzerland due to higher subsidies.
The bottom line is that the Credit Suisse data do not show a clear statistical connection between the tax burden and the overall financial attractiveness of a location as a place to live. On the one hand, the urban cantons of Geneva and Basel-Stadt stand out with their relatively high tax burden and other high fixed costs. On the other hand, there are a number of rural cantons in central and eastern Switzerland with relatively low taxes and low other fixed costs. In between are parts of the Mittelland and western Switzerland as well as the cantons of Zug and Zurich – with a combination of cost advantages and disadvantages.