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OPINION & ANALYSIS

OPINION: Switzerland’s richest are getting richer but is that what the country wants?

The figures are damning. From 2005 to 2018, the share of assets held by the richest one per cent of the Swiss population increased from 38 to 44 per cent. Clare O’Dea looks at the problem Switzerland's glaring wealth inequality.

OPINION: Switzerland's richest are getting richer but is that what the country wants?
As the world's political and business elites gather for the annual Davos summit Clare O'Dea explores Switzerland's wealth inequality.(Photo by Fabrice COFFRINI / AFP)

We already knew that Switzerland was a super place for the super-rich to live but now it’s official.

The latest government report on wealth distribution, published quietly without a press release last month, shows just how attractive it is.

Taking this measure of the proportion of wealth concentrated in the hands of the richest one per cent, Switzerland is an outlier in Europe. The 44 per cent rate is higher than in the United States, and more comparable to countries like Brazil and Russia.

The government figures are based on data collected from the cantons by the federal tax administration. Total assets minus debts are calculated but pension savings are not included in the calculation because they are not taxable and therefore not listed in tax declarations.

This trend of the mega-rich accumulating more and more wealth is well established in Switzerland. The bloating of the one per cent is now more extreme than at any time since the Second World War. Is this the kind of record Switzerland should be aiming for?

READ ALSO: Why is Switzerland so wealthy?

Cantons compete to attract wealthy residents

Because this phenomenon has not happened by accident. There is a long-standing trend of tax reduction supporting it. Wealth taxes have gone down consistently since the 1990s, led by centre-right parties, with the steady support of voters. Twelve cantons cut the tax rate for top earners in 2021. 

What benefits the moderately wealthy individual also benefits the obscenely wealthy individual. Inheritance tax is a good example. There is no inheritance tax on direct descendants in 23 out of 26 cantons, and about half of individual wealth is inherited. Swiss residents inherited an estimated 90 billion francs in 2020. 

An ongoing result of this favourable tax climate is that fortunes grow. Cantons compete among themselves to attract rich residents. This means ultra-rich Swiss people are not lured away from the country for tax reasons. Meanwhile, ultra-rich foreigners have compelling reasons to relocate to Switzerland. 

There’s no doubt that Switzerland is a comfortable place for a super-rich person to settle. Beyond the tax regime and the some of the best views that money can buy, there are many other lifestyle and financial benefits.

‘It’s a good thing that Switzerland attracts wealthy residents’

The country has a long history of catering for every need of the super-rich, from healthcare to education to top class wealth management services. The luxury sector is highly developed, providing a perfect playground of shopping, dining and exclusive experiences.

But let’s get back to the question of whether the crazily uneven wealth distribution is a problem. It should be pointed out that there are some technical reasons for the recent bulge in wealth distribution.

READ ALSO: Swiss remain richest in world… but it’s not all good news

We have just emerged from a long phase of low-interest rates. When rates are low, asset prices go up. That means things like shares and property, which is what the rich hold. But even if it looks more dramatic than it is, it is still dramatic.

The data for this report only go up to 2018 so things might have changed somewhat. However, other reports have shown that the pandemic did not cause money to drain away from the one per cent. If anything, it worked in their favour financially.

On the face of it, having almost half the country’s personal wealth concentrated in the hands of so few people seems profoundly wrong.

However, according to a leading Swiss expert on wealth distribution, it is rather a net positive. These residents still pay tax and they spend money. “In a narrow national economic sense, it is a good thing to be an attractive place of residence for wealthy foreign nationals,” Professor Marius Brülhart of the University of Lausanne said.

“However, from a more broadly ethical, global point of view, you could ask whether it is fair to lure wealthy foreigners away from where they made their fortune. Those countries are then losing out on some of their most lucrative taxpayers.”

Swiss direct democracy system mitigates that risk of rich meddling

This issue of economic inequality has been debated for years. The wider social context is relevant. It matters a lot more that someone is sitting on a golden toilet when many in the same society are deprived of decent housing, healthcare or education.

READ ALSO: Swiss richer than ever but wealth inequality persists

In a country like Switzerland with a good social security system and generally good standard of living, you could say it’s tolerable for the rich to be left alone to get richer. In 2019, the average gross income of private households in Switzerland was 9,582 francs per month, with 31 per cent of that eaten up by compulsory deductions and health insurance.

It can be the case that the super-wealthy are blocking the dynamism of the economy by sitting on their billions. This feature of wealth inequality appears not to apply in Switzerland where the economy has had a great run over the past couple of decades.

There is also the concern of a small number of financially powerful people using their money to meddle in politics, but the Swiss direct democracy system mitigates that risk.

I hate to admit but, it is an advantage for Switzerland to have these people here rather than in Monaco or London. And it’s true that some individual municipalities benefit handsomely. IKEA’s founder, for example, famously donated 10 million francs towards a housing complex for the elderly in the village in Vaud where he lived for 37 years.

Not that we should rely on charity. It is up to voters to decide how much their rich neighbours must contribute to the public coffers – through the parties they vote for and how they vote on tax questions.

As long as Switzerland can afford to keep the Swiss and foreign one per cent happy, it will continue to do so. Whisper it from the rooftops: the rich are welcome in Switzerland.

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MONEY

How much do you need to earn in Switzerland to be considered wealthy?

Switzerland is a wealthy country but how much do people need to earn to be considered rich in the country?

How much do you need to earn in Switzerland to be considered wealthy?

In Switzerland, the amount of money one needs to make to be considered rich is different for every location.

The Institute for Swiss Economic Policy’s “Swiss Inequality Database” has calculated this number for each Swiss canton.

What exactly does it mean to be rich, and just how much money do you have to earn to be considered among Switzerland’s wealthiest breadwinners? While the desire for wealth and abundance is – to a degree – universal, its definition varies from place to place. This is particularly the case in a country as well off as Switzerland. Yet, there is clear data that shows when an individual is considered to be among the top earners for every canton.

Swiss national average

Households with an annual income of over CHF 97.591 (before taxes) belong to the wealthiest 20 percent in the country, however, it takes an impressive net salary of more than CHF 1.2 million to be among the country’s richest 0.1 percent. In contrast, after taxes, the latter will be left with around CHF 762,866 in their pockets.

French-speaking Switzerland

As with most things in Switzerland, just what income (before tax) makes one rich can vary significantly from canton to canton.

If you’re hoping to be among Romandy’s top earners, you’ll have the most challenging time accumulating wealth in Geneva where a staggering CHF 2.1 million is required to be considered among the canton’s 0.1 per cent uber rich. If you’re shooting for less, say the canton’s top 20 percent, you’ll only need to be earning a “modest” CHF 102,873 and to position yourself somewhere in the middle, at 5 percent, your salary would have to hit CHF 213,761.

Similarly, in Vaud, an income of around CHF 1,2 million will propel you among the 0.1 percent super rich, while a lesser CHF 192,842 and CHF 101,170, will mean you’re in canton’s top 5 and 20 percent earners.

Becoming rich is slightly more attainable in neighbouring Fribourg, and Neuchâtel where incomes of CHF 95,526, and CHF 86,805, respectively, place you within the top 20 percent of earners, and incomes of CHF 158,006 and 148,677 in the top 5 percent. In order to be considered among the cantons’ 0.1 percent, you’ll need an income of CHF 745,507 in Fribourg and CHF 930,015 in Neuchâtel.

Deutschschweiz

Leading the chart in German-speaking Switzerland is Zug where an income (before tax) of CHF 3,7 million will put you in the 0.1 percent of earners. In comparison, Zurich’s super rich average CHF 1,4 million per year. The gap is equally wide when it comes to the top 5 and 20 percent of the cantons’ wealthiest, with Zug’s averages standing at CHF 310,584 and CHF 133,048, while Zurich averages at CHF 205,822 and CHF 109,585.

In Basel-Country and Basel City, you will need to bring home CHF 106,284 and CHF 98,784 to be among the top 20 percent, while the top 0.1 percent make around CHF 1.1 million and 1.8 million. The two Basels highest 5 percent earners bag around CHF 185,288 (Country) and CHF 194,727 (City).

Things look a little brighter in Bern and Aargau with the former’s 0.1 percent income standing at a lesser CHF 730,312. Bern’s chief 5 percent earn CHF 144,412 and its 20 per cent average at CHF 89,150.

The situation is similar in Aargau with its richest earners bringing in some CHF 730,312. The top 20 percent of Aargauers have a salary of around CHF 707,342, with the 5 percent bringing home around CHF 165,682.

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