20 Minutes.

A recently released report, put together by a group of experts, proposes measures to dissuade people in Switzerland maintaining high levels of debt, in particular home mortgages.

The report says the current system encourages individuals to maintain unhealthy levels of debt.

The level of home mortgage debt in Switzerland is very high by international standards and has been rising over the last few years along with property prices.

Concerns for the financial sector

Mortgages make up more than 90% household debt in Switzerland. The report’s authors are concerned about the risks these high debt levels pose to the financial sector and the Swiss economy, in particular the impact of a sharp rise in interest rates, associated with a real-estate price correction.

International organisations have already sounded the alarm. The OECD and the IMF have made several calls for Switzerland to do away with tax incentives that encourage household borrowing and risk financial instability.

The suggested fix involves changing the Swiss system of imputed rent, an arrangement where home owner-occupiers pay tax on an additional sum of synthetic rent calculated based on their home’s floor area. The report suggests doing away with this imputed rent while removing the ability to deduct home mortgage interest from taxable income.

Been there, done that

Over the last few years, Swiss federal council attempts to change the system have met with resistance, either by parliament or the people. The federal council does not appear to have plans for another attempt right now.

The report was put together by a group made up of representatives from the federal department of finance, the federal department of the economy and the Swiss national bank (SNB), under the direction of the federal tax administration.

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