GENEVA: Taxpayers in parts of Switzerland this year face an unusual request from fiscal authorities: please delay settling your bill until as late as possible.
Zug, the small but affluent canton outside Zürich, has announced it is ending discounts for early payment of tax bills. The reason? The longer it has cash on its books, the more likely it will incur costs as a result of negative interest rates charged by Swiss banks. The canton calculates that the move will save SFr2.5m ($2.5m) a year.
Its extraordinary appeal — which could be followed by other cantons — is the latest unintended consequence of extraordinary steps taken by the Swiss central bank to weaken the strong franc, which is hitting export industries in the affluent Alpine economy.
A year ago, the SNB gave up an attempt to cap the franc’s value against the euro in the face of European Central Bank efforts to weaken the single currency.
To weaken the attractiveness of Swiss assets, the SNB has pushed official Swiss interest rates deep into negative territory, which commercial banks are increasingly passing on to their biggest clients. Negative interest rates in effect mean that depositors pay to park money in banks.
“Considering the long lasting phase of low interest rates in Switzerland and the negative interest rates which have to be paid, the canton has no incentive to motivate taxpayers to make early payments,” Zug authorities said in a statement. “On the contrary, the canton has an interest in receiving money as late as possible — so it pays less negative interest.”
In a further contrast with the usual zeal of tax authorities elsewhere in the world, the interest rate charged on overdue Zug tax liabilities has also been cut to zero — although late payers will still risk financial penalties and black marks on their credit records.
Zug is not yet having to pay negative interest rates, Peter Hegglin, the canton’s finance director, told the Financial Times. But he warned that many effects of negative interest rates were still unclear. “The next few months and years will show where the journey is leading,” he said.
Early payment offers appeal to punctual Swiss taxpayers and also make financial sense. The canton of Lucerne offers an interest rate of 0.3 per cent on tax payments made before its official end-of-year deadline — a better return than can be achieved on many bank accounts. But Lucerne cut the early payment rate last year and has not ruled out further cuts, said Paul Furrer of the canton’s tax department.
“The interest rate situation is very bad,” Mr Furrer warned. So far Lucerne was “only on the edges of the negative interest problem” but had incurred negative interest rates on some deposits in 2015.
Swiss tax experts said Zug had offered particularly attractive discounts for early payments, which would limit the scope for some cantons to take similar action.
Swiss policymakers including Thomas Jordan, SNB chairman, have voiced concern about long-run distortions to the financial system created by negative interest rates.
With the ECB stepping up efforts to weaken the euro, however, the SNB is widely expected to keep its main policy interest rate at minus 0.75 per cent during 2016.
So far, Swiss banks have not imposed negative interest rates on normal retail customers’ accounts.
