Economic Impact of COVID-19 on Switzerland and its Policy Response

Switzerland’s economy is expected to be adversely affected by COVID-19 pandemic in 2020. The real gross domestic product (GDP) of Switzerland is expected to shrink, unemployment level to increase and current account balance to show negative growth due to COVID-19 this year. As of 05^th June 2020, Switzerland had 30936 confirmed COVID-19 cases out of which 28600 people have recovered from the disease while 1921 have lost their lives.

In this blog post we will be focusing on economic impact of COVID-19 pandemic on Switzerland. We will also be taking a look at the social, fiscal and employment related policy measures taken by Switzerland government under following sections –

1. Impact of COVID-19 on Switzerland Economy in 2020

2. Coronavirus (COVID-19) Containment Measures of Switzerland

3. Coronavirus (COVID-19) Related Fiscal Policy Measures by Switzerland

4. Coronavirus (COVID-19) Related Employment Policy Measures by Switzerland

5. Coronavirus (COVID-19) Related Social Policy Measures by Switzerland

We have covered various macroeconomic factors and PESTLE (political, economic, social, technological, legal, and environmental), SWOT (Strengths, Weaknesses, Opportunities and Threats) and risk analysis for Switzerland in separate market research reports.

1. Impact of COVID-19 on Switzerland Economy in 2020

Switzerland’s real gross domestic product (GDP) was CHF 708.272 billion in 2019 and due to COVID-19 outbreak it is estimated to shrink by 5.966% to be around CHF 666.016 billion in 2020.

Switzerland’s unemployment rate was 2.306% of total labor force in 2019. Due to slowdown in global economic activity due to COVID-19 pandemic the unemployment is expected to increase by 15.38% and reach 2.725% in 2020. Unemployment is further estimated to decrease in 2021 by 4.81% and reach 2.6% of total labor force in Switzerland.

Switzerland’s current account balance which has been constantly increasing since 2017. It is expected to decrease it’s current account balance at 7.216% of GDP in 2020 from 12.246% of GDP in 2019. This means Switzerland will remain net lender to rest of the world in 2020 despite decrease in current account balance value.

As of 14^th May 2020, the Switzerland government has taken following fiscal, employment and social policy measures to contain coronavirus (COVID-19) pandemic.

2. Coronavirus (COVID-19) Containment Measures of Switzerland

Quarantine/Confinement

The Federal Council of Switzerland will relax the restrictions for activities which involve few direct contacts, which do not cause significant flows of people and for which it is easy to set up protection plans. The hairdressing and beauty salons, DIY stores, garden centers, and florists will reopen.

3. Coronavirus (COVID-19) Related Fiscal Policy Measures by Switzerland

Health system measures

The hospitals will again be able to perform all procedures. The medical cabinets will reopen.

Income support measures for individuals and households excluding tax and contribution changes

The Federal Council retroactively extended the coverage of loss of earnings allowances as of March 17 for the self-employed indirectly affected by the restriction measures of the Confederation. This right will last 2 months maximum.

Support to firms

The Federal Council adopted an ordinance on April 16 with several measures to prevent bankruptcies, including a delay for SMEs and independents for being declared bankrupt due to the covid-19 crisis.

Liquidity buffer in the area of tax

Liquidity reserve in the tax area on federal level: companies are able to postpone payment deadlines without interest on arrears. The interest rate is reduced to 0.0% for VAT, certain customs duties, special consumption taxes and incentive taxes between 20 March and 31 December 2020; i.e. no default interest will be charged during this period. An identical regulation applies for direct federal tax invoices from March 1 to December 31, 2020 that become due within this period. Withholding tax and stamp duty do not appear to benefit from these advantages.

Some cantons have also already communicated measures relating to cantonal and municipal taxes. In particular, most of the cantonal tax authorities have implemented certain measures in connection with the cantonal/communal taxes (e.g. extension of payment deadlines, waiving of late interests, postponement of filing deadline of the 2019 tax return, etc.).

The due dates for these taxes and duties do remain formally in place. Therefore, companies wishing to settle tax liabilities after their due date must submit a corresponding application – in practice, this can be fairly informal in nature – to the tax authorities. The form of notification can vary depending on the type of tax in question.

Value added tax (VAT) Related relief

• To benefit from tax payment deferrals, companies must file a written request in accordance with provisions of the VAT law, and this applies to all taxpayers including foreign companies with a Swiss tax representative. All applications must be submitted by email or post. No separate procedure is currently planned.
• The Swiss tax authority is currently prioritizing the review of requests for early payments of VAT credits and is aiming for fast payment settlement.
• Businesses may extend payment periods for value added tax (VAT), customs duties, special excise taxes, and incentive taxes, without having to pay interest. For this reason, the interest rate on late payments will be reduced to 0.0% in the period from 21 March 2020 to 31 December 2020. No interest on arrears will be charged during this period.
• There are currently no separate extensions to the deadlines for VAT refund procedures planned (i.e., the deadline concerning VAT incurred in the calendar year 2019 is still 30 June 2020).
• The late-payment interest rate of 0.0% applies to all VAT payment obligations regardless of when the obligation arose, for the period from 20 March to 31 December 2020.

Income taxes (federal tax / cantonal & communal taxes)

• Final tax bills: companies that are currently unable to pay final tax bills due to the effects of COVID-19 can apply for an extension of the payment deadline or installment payments. By special decree, late payments of the federal tax due in the period as from 1 March 2020 to 31 December 2020 will not incur any default interest.
• Provisional tax bills / payments on account: for Swiss federal tax purposes, companies currently unable to pay the provisional tax bills due to COVID-19 can apply for an extension of the payment deadline or installment payments.

4. Coronavirus (COVID-19) Related Employment Policy Measures by Switzerland

Income support to persons losing their jobs or self-employment income

• Unemployed persons are covered by compulsory unemployment insurance. The submission of proof of job search efforts is waived. All persons entitled to benefits receive a maximum of 120 additional daily allowances.
• Entitlement to short-time work was extended: Employees in fixed-term employment, apprentices, temporary workers, workers on call and employer-like employees (members of management, business owners, etc.) as well as their spouses who work for them, are entitled to SWC. Persons in an employer-like position as well as spouses are entitled to a lump sum of CHF 3,320. Furthermore, the Federal Council has suspended the companies' co-payment for recourse to short-time work compensation.
• Self-employed persons: If they suffer a loss of income due to the closure of a business or the ban on events ordered under federal law (i.e. are directly affected), they are entitled to compensation amounting to 80 percent of their income and a maximum of 196 Swiss francs per day.
• All other self-employed persons who are only indirectly affected by the measures to protect against the corona pandemic, but who nevertheless suffer a loss of earnings, are entitled to compensation (80 percent of their income and a maximum of 196 Swiss francs per day) if their income is at least CHF 10,000 per year, but does not exceed CHF 90,000 per year (hardship rule). (decision by Federal Council of 16 April. Entry into force retroactively)
• Further measures for persons in the cultural sector (hardship payments).

Helping firms to adjust working time and preserve jobs

The administrative procedures to apply for short-time work (part-time unemployment benefit) have been eased at short notice:

• the waiting period to benefit from this indemnity is eliminated until September 30, 2020 (against 2 days previously, the first days being borne by the company);
• Employees no longer have to reduce their overtime before they can benefit from short-time compensation.
• The approval period for short-time work is extended from 3 to 6 months. This will allow the number of applications to be minimised and thus speed up the approval procedure. In addition, urgent simplifications have been made in the area of processing applications and payments for short-time work with the adoption of new provisions. Short-time work compensation can now also be paid to employees on fixed-term contracts and to persons working for a temporary work organisation. Furthermore, short-time work compensation is accessible for employer-like employees (for example, shareholders of a limited liability company who work as salaried employees in the company), persons who work in the business of the spouse or registered partner as well as apprentices, too.

Financial support to firms affected by a drop in demand

CHF 40 billion for a liquidity aid. Affected companies can apply to their banks for bridging credit facilities representing a maximum of 10% of their annual turnover and no more than CHF 20 million. Credits of up to CHF 500,000 will be fully secured by the Confederation, and will be paid out quickly and with the minimum of bureaucracy. Zero interest will be charged.

Bridging credits that exceed CHF 500,000 will be secured by the Confederation to 85% of their value; the lending bank will secure the remaining 15%. Each company can obtain a credit of this type for up to CHF 20 million, which means a more rigorous bank review will be required. The interest rate on these credits is currently 0.5% on the loan secured by the Confederation.

Further liquidity measures: Businesses should have the possibility to extend payment deadlines without having to pay default interest. For this reason, the interest rate for VAT, customs duties, special excise taxes and incentive taxes will be reduced to 0.0 percent in the period from 21 March 2020 to 31 December 2020.

No interest will be charged during this period. Social insurance contributions: Companies affected by the crisis may be granted a temporary, interest-free deferral of payment of social security contributions. Companies also have the option of having the amount of the regular contributions adjusted if the sum of their wages has fallen significantly. The same applies to self-employed persons whose turnover has collapsed.

5. Coronavirus (COVID-19) Related Social Policy Measures by Switzerland

Reducing exposure to Covid-19 in the workplace

Hygiene regulations for companies, recommendations for home office. Employers in construction and industry are obliged to comply with the recommendations of the Federal Office of Public Health regarding hygiene and social distance. For this purpose, the number of persons present on construction sites or in companies must be limited accordingly. People at high risk should work from home. If that is not possible, they are to be placed on leave by their employers, but will continue to be paid by their employer.

Income support to quarantined workers who cannot work from home

“Corona-Erwerbsersatz Quarantäne”: Persons who are in quarantine and have to interrupt their employment are entitled to compensation if, at the time of the interruption, they are compulsorily insured with the old age provision (i.e. live in Switzerland or are gainfully employed in Switzerland); and are engaged in an employed or self-employed activity.

Helping dealing with unforeseen care needs

“Corona-Erwerbsersatz Eltern”: Parents with children under 12 years of age who have to interrupt their employment because of school or childcare facility closures are entitled to paid leave. Paid at 80% of earnings, up to a ceiling of CHF 196 per day. The entitlement will end once schools/child care facilities re-open. This applies both to employees and self-employed workers (30-day limit for the self-employed). Financed by public social insurance.

Source – With inputs from Organisation for Economic Co-operation and Development (OECD), International Monetary Fund, World Bank, International Labour Organization (ILO) and Government of Switzerland.