“What Is Seen and What Is Not Seen.”: In the 19th century, French economist Frédéric Bastiat developed a didactic tool that continues to help us better understand — and ultimately better shape — government activity. It is easy to lose sight of the fact that every government expenditure has a “hidden” cost.
Considering Opportunity Costs
Every Swiss franc can only be spent once. If you subsidize tourism (visible), that money is no longer available for other government functions or to remain in citizens’ wallets (hidden). This is what economists call opportunity costs.
From a liberal perspective, the government must always justify its activities. After all, the individual citizen is the best judge when it comes to what he or she wants to spend their hard-earned money on. Federal funds should therefore be used judiciously. In this year’s summer series, Avenir Suisse has shown that there is indeed potential for savings in federal finances.
When the Government Competes with Private Companies
Today, the government’s mission exceeds what federal finances suggest. Its entrepreneurial role is particularly questionable. In 2023, Swiss Post, fully state-owned, transferred a dividend of CHF 50 million to Bern. This is the visible part.
Meanwhile, Swiss Post is struggling to stay relevant in its traditional mail business. As a result, it is increasingly expanding abroad. One example is the acquisition of dozens of companies in the digital sector. With the government as owner, there is now a risk that private competitors will be at a disadvantage compared to Swiss Post. For example, the company can finance itself more cheaply than its private competitors — that is the hidden part.
In addition to competitive distortions, poor regulation also leads to significant economic costs. There is enormous room for improvement. For example, 60% of the 1,500 companies surveyed by the State Secretariat for Economic Affairs’ Bureaucracy Monitor complained that the administrative burden had increased in the last five years alone. The government continually expands its scope of action, even if this isn’t directly reflected in a higher state share. For possible solutions, read more on Avenir Suisse’s proposal for a “cleaning week” at Parliament.
Clear Roles for the Confederation and the Cantons
Finally, our suggestions to improve federal finances included several areas where cantons should be taking responsibility. For example, the Confederation spends hundreds of millions of francs on urban and regional transportation.
Our ideas are based on the principle that “Who pays the piper calls the tune” or “who benefits, should pay”. Only then will incentives be set correctly; only then will a region think twice about whether to continue operating a rail line or switch to more cost-efficient buses. Once again, the visible part, namely federal contributions, provides an incomplete picture: the redundancies and inefficiencies resulting from unclear responsibilities remain hidden.
Federalism only functions effectively with a clear division of responsibilities between the Confederation and the cantons. At least there has been some progress: Just before the summer break, the Federal Council announced the “Disentanglement 2027” project (Entflechtung 27 – Aufgabenteilung Bund-Kantone), aimed at reviewing the allocation of tasks between the Confederation and the cantons across 21 areas. A concrete plan is expected by the end of 2027. This idea is commendable, as the last major review of this kind took place nearly 20 years ago.
The Biggest Distortion of All
What is hidden is often at least as important as what is visible. That is why the current debate around the federal budget is being heavily driven by numbers and calculators. Politicians should not lose sight of the fact that clearly defined responsibilities among all levels of government, the reduction of regulatory red tape, and the elimination of competitive distortions are also crucial—there’s a lot of work to be done in these areas.
Cutting federal spending is at least a first and important step. This allows for taxes to be kept stable, if not reduced. This brings us to one of the greatest distortions of all: Every government expenditure must ultimately be financed by government revenue. The taxes imposed to cover these costs discourage workers, investors, and savers. It is precisely these long-term consequences that Frédéric Bastiat warned about — yet many refuse to acknowledge them.
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