The canton of Zurich loses a location attr | News | Currently
In the canton of Zurich, there is a trend for concern. Private individuals with assets and companies migrate to other cantons. Mario Bonato from Avenir Suisse analyzes why this is the case and comes to the conclusion that a noticeable tax cut is essential for Switzerland’s economic engine alongside liberal, market-oriented reforms.
The canton of Zurich accounts for over 20% of Swiss economic output. The most populous canton is not only home to more than 1.5 million people, but also provides one in five jobs in the country. In the national financial equalization, which is intended to support “the cohesion of the country”, Zurich is the largest net contributor with CHF 500 million and accounts for 37% of the payments from all donor cantons. “Zurich’s financial sector, with its globally active insurance companies and banks, shapes the overall image of Switzerland abroad. The canton is at the forefront not only in the Swiss Federal Constitution, but also in its own self-image,” summarizes Mario Bonato, Senior Researcher at Avenir Switzerland, the facts together.
Other cantons outperform Zurich
But Zurich’s self-confidence is increasingly losing a basis, he notes. Although Zurich is still attractive, other cantons are catching up in terms of location attractiveness. In Bonati’s opinion, what is particularly interesting is the composition of immigration and emigration: wealthier sections of the population are leaving the canton, while the newcomers are on average around half as wealthy. As a study shows, around CHF 5 billion in net assets have migrated within four years as individuals move away. Further studies show a similarly negative picture for legal entities. In the intercantonal relocation of company headquarters, the canton of Zurich recorded the largest net emigration in 2021 – more than all other cantons combined. Most of these former Zurich companies migrate to the attractive canton of Zug or to the cantons of Schwyz and Aargau.
The canton of Zurich loses companies
Overall, according to Bonato, the canton of Valais appears to be the most attractive place to relocate from a net perspective. The cantons of Thurgau and Appenzell-Ausserrhoden also have above-average success in attracting companies. If one compares these migration movements with the cantonal income tax rates, the CRIF Institute – with the exception of the canton of Valais – comes to the unequivocal conclusion: the most attractive relocation destinations have the lowest income tax rates.
Taxes decide
The poor performance of the canton of Zurich is therefore no coincidence, believes Bonato. If you compare the income tax rates between the cantons, you will find the sixth highest in the canton of Zurich and the second highest in Switzerland for corporate tax rates. “Today, the framework conditions for wealth and many companies in other cantons are much more attractive than in the canton of Zurich – at least from a tax point of view,” notes the senior researcher from Avenir Suisse. Although the movements were relatively small compared to the total stock of resident companies, the statement about the trend gives cause for concern. All the more so when you consider that the canton of Zurich is also below average when it comes to the number of start-ups.
Canton of Zurich in the lower third for taxes
Cost environment weighs on business success
According to Bonato, another indication that the framework conditions in the canton of Zurich should be optimized is the cost environment, which includes wage levels, energy prices, but also patent boxes and tax rates. In the present context, the latter are particularly relevant. As a study by UBS shows, the canton of Zurich comes second to last in terms of costs – just ahead of the canton of Bern and well behind the canton of Geneva, which is third from last. The greatest immediate lever for improving the cost environment would be an adjustment to the tax rate.
Businesses in the cantons of Bern and Zurich are the most unprofitable
“The cantonal parliament has already identified the right direction and taken a small step. A tax base reduction of one percent was implemented. The Zurich government council is also recognizing the signs of the times and investment in 2024 another tax cut of two percent is doubtful,” comments Bonato. However, given the current majority in the cantonal council, hardly any more can be expected. An emotional tax cut is in addition to liberal, market-oriented reforms unavoidable.