The Canton of Bern is facing renewed pressure to reform its tax policies for businesses, as a recent report highlights its uncompetitive position compared to other cantons. Neighboring Lucerne, in particular, has seen significant economic growth following its low-tax strategy, prompting calls for Bern to reduce its own spending and corporate tax rates.
Key Takeaways
- Lucerne has experienced strong economic growth after implementing significant tax cuts.
- Bern ranks last among Swiss cantons for corporate profit taxes for the sixth year in a row.
- The tax difference between Bern and the Swiss average has doubled over the past two decades.
- Business leaders in Bern advocate for deep spending cuts to enable tax reductions.
Lucerne's Low-Tax Approach Drives Growth
Nearly two decades ago, the Canton of Lucerne initiated substantial tax reductions. Many observers were skeptical, arguing that a large canton with extensive infrastructure and public services could not afford such a strategy. However, after an initial period of adjustment, Lucerne's approach has proven successful.
The canton's corporate tax rates were lowered to levels almost matching Zug, a canton known for its low taxes. This move sparked significant economic activity. Lucerne now reports budget surpluses in the hundreds of millions of francs. The population is also growing, which is expected to grant Lucerne an additional seat in the National Council by 2027.
"Lucerne's economy is thriving. The canton records surpluses in the triple-digit millions, and the population is growing, so Lucerne will gain an additional National Council seat by 2027, while Bern will lose another," stated Henrik Schoop, Director of the Bernese Chamber of Commerce and Industry (HIV).
Bern's Lagging Tax Competitiveness
The Bernese Chamber of Commerce and Industry (HIV) commissions KPMG, a consulting firm, to produce an annual tax monitor. The latest report, released on Tuesday, confirms a sobering reality for Bernese businesses: for the sixth consecutive year, Bern has the highest corporate profit taxes among all Swiss cantons.
Tax Disparity
- Bern's corporate profit tax rates are the highest in Switzerland.
- For income taxes, only Vaud and Geneva have higher maximum rates than Bern.
- Lucerne ranks 10th for income tax rates, indicating a more favorable environment.
While Bern slightly reduced its corporate tax rate in 2024 from 21.04 percent to 20.54 percent, and a further reduction is planned for 2029, these steps are not enough. HIV Director Schoop acknowledges the canton's efforts under Finance Director Astrid Bärtschi (Center party). However, he emphasizes that current plans are far from sufficient to reach the middle ground in cantonal tax burdens.
Widening Gap with National Average
Frank Roth of KPMG, the author of the tax monitor, highlighted a critical trend. Bern has consistently ranked among the lowest in tax competitiveness for years. However, the gap between Bern's corporate tax rates and the Swiss average has widened significantly. This is because other cantons have reduced their corporate taxes much more aggressively.
Historical Tax Trends
In 2007, Bern's corporate tax rate stood at 23.4 percent. The Swiss average at that time was 20.8 percent. By 2025, the Swiss average is projected to drop to 14.4 percent. This means Bern's difference from the national average has increased from just under 3 percentage points to over 6 percentage points.
This growing disparity puts Bern at a disadvantage in attracting and retaining businesses. Companies look for favorable tax conditions when deciding where to invest and operate. The current situation in Bern makes it less appealing compared to cantons like Lucerne.
Focus on Spending Cuts
Daniel Arn, President of the Bernese Chamber of Commerce and Industry (HIV), argues that Bern does not have a revenue problem, but rather an expenditure problem. He believes that the canton's high spending prevents it from offering competitive tax rates. Reducing public spending is key to creating fiscal space for tax relief.
Arn recognizes that the debate over planned tax cuts in the cantonal parliament will be challenging. This is especially true when considering the potential loss of revenue for municipalities. He also notes that much more lobbying work would be necessary to achieve the HIV's broader demands for tax reform.
The business community in Bern is urging policymakers to take bolder steps. They believe that a more competitive tax environment is essential for the canton's long-term economic health and prosperity. Without significant changes, Bern risks falling further behind its more fiscally agile neighbors.
The Path Forward for Bern
To improve its position, Bern must consider a comprehensive strategy. This strategy would involve not only targeted tax reductions but also a critical review of public expenditures. Learning from the success of cantons like Lucerne could provide valuable insights.
Attracting businesses and fostering economic growth often requires a proactive approach to tax policy. The current situation, where Bern consistently ranks last in corporate tax competitiveness, suggests that a more aggressive reform agenda is needed to secure the canton's economic future.