The successful Swiss rule is relatively simple. Most of the federal budget must be planned to balance each year when adjusted for economic conditions. “Structural” borrowing, in other words, is a no‐no. Instead, the Swiss simply cap federal spending annually to the level of structural, that is cyclically adjusted, tax receipts. Government expenditure therefore broadly stabilises around the trend in government revenues, rather than suffering through cycles of austerity and largesse.
Yes, budget deficits still occur when economic growth is below trend. Over the economic cycle, though, every Swiss franc of covered spending is paid for: surpluses must be generated during booms to offset cash borrowing when the economy falters.
What’s more, because the spending cap is linked to revenue estimates derived from past trends and near‐term forecasts, not highly uncertain long‐term predictions, politicians must raise taxes before they increase spending permanently. They can’t make “giveaways” according to some speculative future “wiggle room”.
This tough Swiss approach is effective because it counters four political economy budget truths: politicians game rules with loopholes; over‐optimism about growth can lead to deficit biases; governments can control spending better than revenues; and fiscal rules will be abandoned if not resilient to recessions and emergencies.
The last point is crucial to Switzerland’s experience. Expenditure sensitive to downturns, such as unemployment insurance, is excluded from the spending cap. If borrowing is higher than expected, budgets are adjusted gradually, not rapidly, to compensate. Emergencies such as pandemic spending create more leeway still, with six years granted for offsetting budget tightening.
Knowing this upfront incentivises responsible lawmaking. Swiss national debt rose by only 2.4 percentage points of GDP between 2019 and 2021, against the UK’s 11.5. Remarkably, Switzerland expects a balanced budget already this year, while our deficit sat at deep recession levels even prior to the expensive energy price guarantee.
Without a written UK constitution, of course, a Swiss‐style fiscal rule here would always be at risk of abandonment. We’d also need significant deficit reduction to reach where we could implement it. But if serious about gripping debt, the simplicity and resilience of the rule clearly has much to commend it. If Jeremy Hunt wants more information on the Swiss debt brake, in fact, he could always call on a former chancellor who wrote glowingly about it back in 2012. The advocate’s name? Kwasi Kwarteng.
