Why do nearly half of Swiss households have debts?

New data shows that over 40 percent of the population lives in a household with at least one debt. Large families, the unemployed, and foreigners are the most affected.

Why do nearly half of Swiss households have debts?
Nearly half of Swiss households are in debt. Photo by Fabrice Coffrini / AFP

Given that Switzerland is officially the most expensive country in the world it's perhaps no surprise so many households are in debt.

Payment arrears are the most common type of debt. Nearly one in five people falls into this category, according to a survey on income and living conditions published by the Federal Statistical Office this week. 

The figures cover the year 2017, but they are the most recent available.

Almost 10 percent of the population (9.9 percent) are in debt due to unpaid or late payments of taxes and 7.3 percent of the population are in arrears due to unpaid insurance premiums. These are the two most common forms of household debt in Switzerland.

These debts are the reason 9.9 percent and 7.3 percent of the population, respectively.

But arrears can also relate to rent, mortgage interest, loan payments, alimony, water, electricity, gas, heating, telecommunications, or other bills.

READ MORE: What does Switzerland spend all its money on?

A quarter of families are more indebted than households without children, which make up only 11 percent of the population.
And more than a third of people living in single-parent families had faced at least one late payment in the past 12 months.

After the arrears, vehicle leases constitute the most frequent debts — 14.6 percent of Switzerland’s residents have skipped on these car payments.

Next comes money owed to family or friends (10.3 percent) and consumer loans (9 percent).

In total, 42.5 percent of the population lives in a household with at least one type of debt, 18.4 percent with at least two, and 8 percent with at least three.

The latter category is more prevalent in the French-speaking cantons and in Ticino than in German-speaking Switzerland. Families with at least three children (17 percent), the unemployed (15 percent), and immigrants (13 percent) are the most affected.

It is also these three categories which are most often the subject of legal proceedings.

Overall, 7.6 percent of households have at least one person affected by a lawsuit or an act of default of property. More than one in four unemployed people are in this situation, as are 23.8 percent of foreigners and 18.3 percent of large families.

The study also shows that young people tend to be more likely than their elders to buy things they cannot afford. Again, that statistic pertains more to the French than German speakers.

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German cabinet agrees record levels of new debt for 2021

The German government agreed Wednesday to take on record borrowing this year to weather the economic blow of the coronavirus pandemic.

German cabinet agrees record levels of new debt for 2021
Finance Minister Olaf Scholz. credit: dpa | Kay Nietfeld

In budget adjustments signed off by Chancellor Angela Merkel’s cabinet, Europe’s largest economy will borrow a total €240.2 billion in 2021, a third more than initially planned.

The adjusted budget, which will see Berlin break its taboo on new debt for the third year in a row, still has to be approved by parliament.

“We have decided to suspend the debt brake once again, and I think that’s justified,” Merkel told the Bundestag lower house, adding that the budget was “measured” despite “more insecurity” than usual.

“We are taking the right measures to manage the economic and financial effects of the pandemic,” added Finance Minister Olaf Scholz.

After maintaining a budget surplus for the last decade, the economic slump caused by the pandemic has forced Berlin to take on €370 billion in new debt in 2020 and 2021, with an extra €85.1 billion planned for 2022.

With the country facing a dangerous third wave and shutdown measures extended into April, Germany’s recovery has proved slower than expected this year.

Having originally planned to halt borrowing in 2022, the government is now aiming to return to its golden rule of fiscal discipline a year later, with only €8.3 billion of new debt in 2023.

The so-called “debt brake” is a rule enshrined in the constitution which forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.

READ ALSO: Merkel admits Easter coronavirus shutdown plan her ‘mistake alone’

Germany smashed the taboo in 2020 and 2021 as it scrambled to shield businesses and workers from the economic hit of the coronavirus.

The state has already paid out more than 114 billion euros of financial support to businesses since the beginning of the pandemic in the form of guaranteed loans, direct aid and shorter-hours work schemes.

Yet according to a report published by the German Economic Institute on Wednesday, the crisis has still cost the German economy 250 billion euros so far.

Extended restrictions

Hopes of a recovery this year have been dashed with entire sectors of the economy idled for months and the government revising down its 2021 growth forecast to three percent in January.

As a third wave of the pandemic tears through Europe, Germany extended shutdown measures by another several weeks at a marathon meeting between Merkel and state premiers on Monday.

Though plans for a strict five-day lockdown over Easter were scrapped Wednesday, businesses such as non-essential shops, leisure facilities and cultural venues will still remain largely closed until at least April 18.

In a report published Monday, the Bundesbank central bank predicted that restrictions would see economic output “contract markedly” in the first quarter of 2021.

The measures have also been met with growing frustration from business organisations, with the German Commerce Association warning that 120,000 shops could be forced to close if the measures continue to drag on.

The issue of taking on new debt, meanwhile, has also sparked heated political debate ahead of a September general election.

In January, Merkel’s chief of staff Helge Braun caused a major ruckus within his own CDU party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

SEE ALSO: ‘We have finances well under control’: Germany takes on less debt than expected in 2020