Federal debt brake, USI in the group of experts to solve issue of budget underruns

In February 2017, the Federal Council mandated a group of experts to draft a report with policy recommendations addressing the issue of budget underruns in the context of the Federal debt brake bill that was passed in 2003. On August 30, the Federal Council took note of the recommendations the group formulated in their final report and has decided that it shall continue to monitor the development of budget underruns and, in spring 2019, examine variants on how to proceed, based on further reports by the Federal Department of Finance. 

Patricia Funk, Associate Professor at the Institute of Economics (IdEP, USI Faculty of Economics) was called upon by the chairman of the group of experts, Prof. Jan Egbert Sturm, Director of the KOF Swiss Economic Institute at ETH Zurich, to contribute to the discussion with her expertise in the field of economics and of political institutions. “I was very pleased with this invitation”, says Prof. Funk, “and even more with the outcome of our work, which de facto will contribute to the definition of Federal fiscal policy in this area. This is a major achievement, also for the acknowledgement of the research that my colleagues and I are conducting at the USI Institute of Economics”. 

The discussions and analysis of the experts, conducted through a series of group sessions in Berne, drew elements from microeconomic theory, political economy and knowledge of macroeconomic models. According to Prof. Funk, “part of the recent budget overruns had its origin in the overestimation of interest and inflation rates, which turned out to be unusually low after the financial crisis. As forecasting errors may go in the opposite direction as well, it is unclear whether the budget underruns will persist to the same extent. Additionally, the introduction of the new management model for the Federal Administration (NMM) at the beginning of this year may reduce the magnitude of future budget underruns. Our basic recommendation to the Federal Council is therefore not to change the debt break right now, and to continue using the budget underruns for debt reduction. Should large budget underruns persist in the future, one may consider using them to reduce taxes instead.” 

For the full press release and the experts’ report (available only in French or in German, attached to the press release): www.admin.ch/gov/en/start/documentation/media-releases.msg-id-67922.html “