The Swiss state debt load has risen since the outbreak of the pandemic – and with new debt comes increased pressure on the Swiss National Bank to give the state more of its – healthy – profits.
The representatives of the Swiss National Bank (SNB) and the Federal Department of Finance (FDF) are currently drawing up a new agreement on profit distribution, as a spokesman for the ministry confirmed to finews.com. The new agreement will be valid for the next four years and regulates the mechanism according to which the SNB transfers a set amount of its annual profits to the federal government and the cantons.
According to the agreement now in force, which was amended in March 2020, the public sector will receive 4 billion Swiss francs ($4.5 billion) for the past financial year. Already last year, the SNB distributed a corresponding sum. 4 billion was the agreed sum because the so-called profit distribution reserve had exceeded the limit of 40 billion francs.
Distribution Reserve Continues to Increase
Now, a lot has happened since then, and instead of reducing debts as it has always done over the past two decades, the federal government has had to spend much more money than it can earn. At the same time, however, the SNB's profit distribution reserve rose briskly last year, as the SNB's preliminary figures from January 7 showed. Thanks to last year's profit of about 21 billion francs, the reserve grew to nearly 100 billion francs.
The profit ultimately reflects the SNB's interventions in the foreign exchange market, which serve to alleviate appreciation pressures on the franc that are considered excessive. The SNB then invests the foreign currencies it buys in securities. In this way, it has become one of the largest institutional investors in the world over the past few years and has collected billions in dividends thanks to good market conditions. In addition, higher prices have helped the SNB to make massive book profits on its equity holdings, which now total around 150 billion francs.
New Debt – New Demands
No wonder this money is whetting the appetite in the capital of Bern. Whereas in previous years the main argument was the gap in retirement provisions, now the pandemic and the resulting additional costs are coming into play. According to an interview granted to the «NZZ» by Serge Gaillard, head of the federal finance administration, the pandemic led to extra expenditures of 15 billion francs at the federal level. A similar sum could be added this year, depending on the outcome of the pandemic – a total of about 30 billion francs may thus be added to the state debt load. A large sum, but Gaillard added that the federal government had saved exactly that much money since 2005.
Couldn't the SNB's money now be used to pay off this debt? That's exactly what the Socialist Party is asking for. «We demand that the SNB contribute to these follow-up costs of the Corona crisis in the form of a one-time payment,» explains SP National Councilor Prisca Birrer-Heimo. In its statement, the party, which is one of four in the Swiss government, takes the position that the SNB's distribution reserve belongs to the people.
Some Economists Agree
The demand for higher payments is also being heard among renowned economists. For example, Stefan Gerlach, chief economist at Zurich-based private bank EFG, stressed at a virtual conference that the SNB's capital buffers are huge and added, only partly in jest, that the question is rather how to get rid of the money in the first place: «The payments to the government are extremely modest,» said the former vice president of the Irish National Bank. «There is a lot of pressure on the SNB to pay more.»
In the past, the SNB has not opposed increasing the distribution but has simply emphasized that, as an independent central bank, it wants to pay contributions exclusively to the authorities, and certainly not earmarked payments such as to the AHV. This is designed to prevent political pressure from mounting on the bank.
When presenting the supplementary agreement in March 2020, the SNB even wrote: «From today's perspective, the distribution potential is also higher in the medium term. For the preparation of the next agreement, the FDF and the SNB will therefore examine the question of whether the framework for the distribution to the Confederation and the cantons can be increased. In doing so, a high priority will be given to the stabilization of distributions and thus predictability for the Confederation and the cantons.»
Independence of the SNB Must Be Preserved
The importance of the SNB's independence is also central to the FDP Switzerland. In a statement to finews.com, the FDP writes that the party executive committee has spoken out against the SP's demand. Clearly, the SNB can decide to distribute more money, but the decision must be made independently of political pressure. «The SNB must not be harnessed for political purposes, no matter what the concerns are,» said the statement. «For the FDP, it is central that our country's monetary policy is and must remain independent.»
Of course, the political parties are not sitting at the table when the SNB and FDF together draw up a paper on distribution policy. But it is equally clear that the pressure on the SNB has become very great.
