Tax incentives lead to comparatively high mortgage debt levels
Swiss citizens are highly indebted by international standards, mainly due to the purchase of residential property. This could harbor risks for the financial market.
According to the report of a working group - consisting of representatives of the FDF, the EAER and the SNB under the leadership of the Federal Tax Administration - the mortgage debt of private households in Switzerland is not only very high by international standards, it has also gradually increased in recent years. At the same time, the increasing demand for real estate has led to a sharp rise in real estate prices.
Accordingly, there are "non-negligible uncertainties" as to how this high level of debt would affect the resilience of the financial sector and the Swiss economy in the event of a significant rise in interest rates - combined with a price correction on the real estate market. In their country reports, the OECD and the IMF have already repeatedly recommended that Switzerland remove the tax incentives for private households to take on debt with a view to financial stability.
Based on the report, the "Future of the Financial Centre" Advisory Board recommends that the Federal Council strive for a change in the system of imputed rental value taxation. Specifically, the taxation of imputed rental value should be waived and, in return, the property costs incurred on owner-occupied residential property, in particular debt interest, should no longer be deductible.
However, the Federal Council has announced that it does not intend to propose such a system change at the moment. In recent years, various attempts have been made to put the taxation of residential property on a new footing. These attempts have always failed in parliament or in referendums.
The working group's report was drawn up on the recommendation of a group of experts on the further development of the financial market strategy under the leadership of Professor Aymo Brunetti. At the end of 2014, the group of experts recommended examining the economic risks of private debt incentives and, in particular, the extent to which tax incentives for debt increase the stability risks in the financial system. (ah)
