Government agrees with OECD verdict

Gerber does not think the pace of reform will pick up in Switzerland Keystone

Switzerland must implement Organisation for Economic Cooperation and Development proposals to speed up economic reforms, a government official tells swissinfo.

The OECD report on Switzerland, published on Friday, said welfare, competition, education, fiscal and tax reforms did not go far enough and were moving too slowly.

Jean-Daniel Gerber, head of the State Secretariat for Economic Affairs (Seco), agreed with the OECD conclusion that Switzerland must increase growth potential and get public spending under control.

But he warned that it would not be easy to rush reforms past the Swiss people.

swissinfo: Do you think the OECD report on Switzerland is overly pessimistic?

Jean-Daniel Gerber: The report is not designed to show how nice Switzerland is but to point out where Switzerland’s weaknesses are. As such it does not talk about the positive aspects such as our stable currency, excellent labour resources, low inflation and excellent transportation links.

swissinfo: The report calls for the pace of reform in Switzerland to be stepped up. Do you agree?

J-D.G.: Apart from some very minor exceptions, I agree with the conclusions 110 per cent. The question is whether it is possible to implement them.

swissinfo: Do you think they can be implemented?

J-D.G.: Switzerland is as much a market economy as a market democracy. The government has not only to convince parliament of its reform intentions but also its citizens, who vote for or against reforms.

In general, Switzerland moves two steps forward and one step backwards, but the direction is clear and set.

Last year the government and parliament approved measures for the so-called growth package, in particular legislation on the domestic market. The people also approved the free movement of people and labour [from all 25 European Union states].

This progress makes me think that we will be able to implement the reforms that the OECD is proposing. However, it will take more time than in other countries.

swissinfo: The report specifically comments on Switzerland’s ageing population and the high cost of welfare payments. How will Switzerland deal with these problems?

J-D.G.: We would like older people to stay in the job market for as long as they can. One way to do this would be to increase welfare payments to older people who stay in employment.

The increased welfare expense would be reimbursed through the taxes older people would pay by staying in the job market.

swissinfo: Why are your growth estimates for the Swiss economy more optimistic than this time last year?

J-D.G.: This is down to several factors. Exports have risen substantially and the general outlook for the world economy has been buoyant. The US market is the second largest for Swiss exports and while it may slow down a little bit, it will not be a substantial drop.

Also, consumers and entrepreneurs in Switzerland are more optimistic, while the unemployment rate has tended to go down in general despite a seasonal increase in December.

But these factors have to be put into perspective because we do not know what will happen with oil prices, the US economy or our major export markets of Germany, France and Italy.

swissinfo: Your economic growth predictions fluctuated wildly last year. Why was that?

J-D.G.: If you look back, all European and world institutes came to the same conclusions. If you compare our prognoses with others then we are in the top third in terms of accuracy.

At the beginning of last year we were more pessimistic than we were three months earlier and we corrected our prognosis, which was 1.7 per cent, to a lower standard [1.5 per cent in January, 0.9 per cent in July, 1.3 per cent in October, 1.8 per cent in December].

Had we maintained our initial prognosis we would probably have been just about right, but nobody expected that the Swiss growth rate would be so big in the third quarter.

swissinfo-interview: Matthew Allen

Key facts

Seco has forecast Switzerland’s GDP to grow by 1.8% in 2006, up 0.1 of a percentage point on its previous prediction.
Unemployment rose to 3.8% in December, up from 3.7 per cent the previous month.
Seco predicts unemployment will fall back to 3.5% later this year.

In brief

The OECD report says Switzerland’s public spending excesses have increased government debt by 25% of GDP, tax by 4% of GDP and mandatory insurance payments by 2% of GDP over the past 15 years.
The report blames old age, disability and health insurances for the steep rises in public spending and calls for an overhaul of the health insurance system.
Swiss consumers pay up to 40% more than the EU average for goods because of a lack of competition in sheltered markets and delays in liberalising energy markets, the report says.