Switzerland’s aging population: public policies

The government of Switzerland described the main actions it is taking to address the challenges posed by the aging population in that nation.

At a meeting at the World Trade Organization (WTO), the Swiss government detailed the steps or measures it is evaluating to mitigate the impacts on productivity and the government’s fiscal balance associated with demographic changes in Switzerland’s population.

In this regard, the Swiss Federal Department of Finance has recently published a report on the long-term sustainability of national public finances.

If demographics and the economy evolve as assumed in the report, there will be an additional burden on public finances due to increased expenditure on Old Age and Survivors’ Insurance (AVS) and health and long-term care.

This will lead to an increase in the ratio of general government expenditure to GDP and in the ratio of public debt to GDP.

Aging

While AHV affects the federal level, the health and long-term care sector influences the budgets of cantons and municipalities.

Demographic change can also contribute to excess savings in the economy, which tends to increase the current account surplus.

In relation to the AHV, the AHV 21 reform has been approved by the Parliament in December 2021.

The reform aims to ensure the financial balance of the AHV in order to safeguard the level of benefits in the AHV.

Basically, it involves standardizing the retirement age by increasing the age of women by one year, to 65 years, in line with that of men.

Additional funding will be provided through VAT, which will be increased by 0.4 percentage points.

The public vote on the AVS 21 reform was scheduled for the fall of 2022. These legislative changes will allow financial stabilization of the AHV until 2030; after that, further measures will be necessary.

Public health

Recently, the federal government has drafted two reform packages to contain the growth of mandatory health insurance (MHI) costs, which would simultaneously mitigate pressure on cantonal health budgets.

In addition, the federal government has submitted to the Swiss Parliament in November 2021 a draft law on budget targets to mitigate the growth of home healthcare costs.

This bill should serve as a counter-proposal to the popular initiative «Cost Breakdown for MHI» of the parliamentary faction «The Middle».

The long-term outlook for public finances is based on the assumption that the proportion of the working population will decrease due to the aging of the population.

On the other hand, it is assumed that productivity can be maintained (according to the long-term average).

If productivity were to decline as well, the impact on economic growth and thus on tax revenues in public budgets would be greater.

On February 16, 2022, the Federal Council published a summary of measures to strengthen the economy.

To increase productivity, emphasis is placed on increasing competition in the domestic market.

The shortage of labor supply is also expected to incentivize labor-saving technical progress, e.g. through digitalization.