## _cr09201 — EXECUTIVE SUMMARY ## Source details **Canonical URL:** [_cr09201 — EXECUTIVE SUMMARY](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09201.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09201.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09201.pdf.json) --- ### Overview - Purpose: Assessment of fiscal transparency practices in Switzerland against the IMF Code of Good Practices on Fiscal Transparency (2007), focused on fiscal transparency at the central government (confederation) level. - Coverage: The confederation accounts for about a third of general government expenditures and revenues. - Basis: Discussions with authorities and other organizations, authorities’ response to the IMF fiscal transparency questionnaire, and other sources of information. IMF Manual on Fiscal Transparency (2007) provides further explanation of terms and concepts used. ### Key strengths and current practice - Institutional clarity and legal framework - Fiscal roles of the executive and legislative branches, and legal framework for management of federal public finances, are clearly defined. - Federal budget process governed by a precise legal framework. - Coherent medium-term fiscal framework provides context for budget decisions; constitutional and statutory rules include a “debt brake.” - Forecasting and tax administration - Accuracy of macroeconomic forecasts compares favorably with private sector counterparts; average error in the one-year ahead GDP forecast was 0.9 percent (1997–2006 study). - Legislative basis for taxation is complex due to multiple federal and cantonal codes, but transparent and well understood. - Tax administration and taxpayers’ rights are clearly defined and efficiently delivered. - Other arrangements - Rules for public procurement, employment, and ethical behavior of civil servants are clear and generally well observed. - Swiss National Bank (SNB) is operationally independent and has no fiscal role; SNB financial instruments stated at fair value with valuation changes reported in the income statement. - Dividends from the SNB: maximum rate of 6 percent; remaining profits distributed to the cantons (two-thirds) and the federal government (one-third) under a 10-year agreement (reviewed after 5 years). ### Areas for further consideration to enhance fiscal transparency and risk presentation - Timeliness and scope of information - Improve timeliness of fiscal information relating to general government (currently compiled with a time lag of two years; final general government data: about 20 months before available; interim data: produced within around 8 months). - Disclose additional information on the government’s debt management strategy, tax expenditures, and contingent liabilities. - Forecasting credibility and validation - Strengthen credibility of macroeconomic and fiscal forecasting by increasing use and disclosure of sensitivity analysis and deployment of alternative scenarios. - Increase external validation of forecasts; external review process is informal and not formalized. - Quasi-fiscal activities and social security transparency - Establish a coherent framework for presenting quasi-fiscal activities (QFAs) in public corporations, especially postal services and railways with universal service obligations. - Strengthen transparency of the social security system by separating the funds for old age pensions and disability (parliament passed a bill to separate old-age and disability pension funds; a referendum will be held in September 2009). - Accounting, audit, and governance - Announce further steps to fully comply with International Public Sector Accounting Standards (IPSAS) of financial reporting; phased consolidation envisaged (Phase 1 starting in 2007; Phase 2 commencing in 2009; issue to be further reviewed in 2013). - Clarify the functions of internal and external audit. - Reinforce the independence (or perception) of the Swiss Federal Audit Office (SFAO). ### Institutional and fiscal relationships (selected details and key statistics) - Definition and composition of general government (GFSM/GFS consistent) — main components and expenditure as percent of GDP, 2006: - Federal government: 7 departments and chancellery 10.9 - of which: 4 extrabudgetary funds 0.8 - State government: 26 cantons 14.7 - Local government: 2715 communes 9.4 - Social security: 4 social security institutions 10.4 - Total (excluding double counting) 36.0 - SNB and public sector ownership - Public sector (cantons, cantonal banks, and other public institutions) holds 61.5 percent of the SNB shares. - SNB is not allowed to provide loans to the federal government or to other levels of government. - SNB support for UBS classified as a QFA - SNB funded 90 percent of the purchase price of distressed assets to the value of US$60 billion. - Transaction classified as a QFA given risk SNB may fail to recover all of its investment, lowering profits distributed to the federal government. - Support took the form of a mandatory convertible loan with obligation to convert unless sold within the next 30 months; operation could lead to a federal government participation of about 9 percent of the capital of UBS. - Public sector debt is expected to increase by 7 percent of GDP as a result of these support measures. - SNB announced in March 2009 it will report quarterly on the SPV’s financial position and effects on SNB’s balance sheet. - Note: On February 10, 2009, it was announced that the stabilization fund would acquire UBS assets for a lower maximum amount than originally planned (approximately US$ 40 billion). - Federal ownership of nonfinancial public corporations (NFPCs) — selected ownership and equity as of December 31, 2007 (Total Government Equity in CHF million): - SBB: Ownership 100; Total Government Equity 9048 - Swisscom: Ownership 52; Total Government Equity 2693 - Swiss Post: Ownership 100; Total Government Equity 2280 - RUAG: Ownership 100; Total Government Equity 774 - Skyguide: Ownership 100; Total Government Equity 285 - SAPOMP: Ownership 100; Total Government Equity 176 - Other: Total Government Equity 51 - Total: Total Government Equity 15307 - Other public financial institutions and arrangements - No government ownership of financial corporations at the confederation level prior to the 2008 support measures. - Swiss Post subsidiary PostFinance accepts deposits and plays an important role in the payments system. - Cantonal banks are partially or fully owned by cantons and typically guarantee all or part of their deposits. ### Mission and methodology - IMF staff mission visited Switzerland—Bern, Geneva, Winterthur, and Zürich—during January 16–29, 2009. The mission comprised Mr. Allen (head), Messrs. Khan and Schiller (FAD), and Mr. Petrie (from FAD’s roster of fiscal experts). - Mission met a broad range of officials and stakeholders including the President of the Confederation and Minister of Finance (Mr. Merz), FFA, SECO, SNB, SFAO, SSF, CdC, public corporations, cantonal representatives, academia, and private sector entities. ### Budget forecasts, macroeconomic assumptions, and fiscal sustainability - Forecasting process and coverage - Forecasts produced by an inter-departmental group led by SECO; SNB participates as an independent observer and publishes its own forecasts. - Forecast frequency: four times a year for the current year and one year ahead only; out-years in MTBF compiled by FFA using its own potential growth estimates. - Forecast publications accompanied by a press release and explanatory bulletin. - Data timeliness constraint: latest general government fiscal outturn data available to the expert group is approximately two years old. - External review: no formal external review of official forecasts; an alternative forecast scenario was included for the first time in the 2009 budget documents. - Historical quantified forecast accuracy: average error in one-year ahead GDP forecast 0.9 percent. - Medium-term fiscal framework and debt - Government prepares a financial plan (MTBF) covering the upcoming budget year and the three following years; prepared on a rolling basis. - Debt brake rule introduced in 2003 ensures nominal debt remains constant over the cycle excluding extraordinary expenditures and revenues. - Gross public debt of the Federation as at end-2007 was 24 percent of GDP; for general government it was 44 percent. - Preliminary estimate for federal debt/GDP for 2008 is 22.8 percent. - Long-term projection (FFA): baseline shows general government debt to GDP rising to 130 percent by 2050, with an estimated fiscal gap of 1.4 percent of GDP. - FFA published Long-Term Sustainability of Public Finances in Switzerland (April 2008); long-term fiscal sustainability report will be updated regularly. ### Accounting, internal control, and budget execution reporting - Accounting basis and systems - Federal government follows an accrual accounting basis for budgeting and accounting under the New Accounting Model (NAM), effective from the 2007 budget. - Integrated SAP package used by all federal departments and agencies with an integrated chart of accounts (CoA) and budget classification. - Controls and reporting cadence - System tracks expenses and investment expenditures against appropriations; commitment control exercised where orders or contractual documents exist. - Treasury single account (TSA) in place for budget entities; departments and agencies may not open bank accounts without approval of the Department of Finance. - Accounting system capable of producing accurate in-year reports on central government budget outturns; detailed budget execution reports produced monthly with a time lag of one month (internal use). - General government reporting: final general government data available about 20 months after year-end; interim data within around 8 months. - Coverage of extrabudgetary funds (two categories) - Four special funds (sonderrechnungen) closely integrated into the budget process; information published in a separate volume. - Social Security Fund (SSF): manages assets valued at around CHF 22 billion; combines AVS, AI, and EO; SSF invests and manages assets but is not responsible for policy/legislation/oversight. ### In-year reporting, supplementary budgets, and audited final accounts - In-year reporting and mid-year review - Budget execution reports presented to legislature and publicly available in June and September; a third November report for finance minister is not published. - Monthly budget execution data for central government produced with a time lag of three weeks but not public. - Annual unaudited financial statements issued within 6 weeks after year-end; audit completed later. - Supplementary budgets and adjustment practice - Supplementary budgets presented to legislature in June and December. - During 2000–07, supplementary budgets averaged CHF 800 million, equivalent to 1.5 percent of total expenditures. - No contingency provision within the central government budget. - Audited final accounts - Audited financial statements submitted to parliament within four months of the end of the fiscal year. - Audit report not attached to the financial statements published by the Department of Finance because financial statements published in April and audit report normally signed in May. - Audit covers only part of the published financial statements package (does not cover Section 1 of Volume 1 and Volumes 2B and 3). ### Treatment and disclosure of fiscal risks, tax expenditures, and QFAs - Fiscal risks and contingent liabilities - Comprehensive information on fiscal risks is not presented in the budget documents; Notes to the Financial Statements contain brief narratives on largest contingent liabilities and gross exposures. - Budget documents contain a separate appropriation for estimated cost of calls on guarantees but do not present comprehensive information on contingent liabilities. - Tax expenditures and public subsidies - Significant federal tax expenditures (possibly equivalent to around 10 percent of total federal revenues, depending on the benchmark). - Under current law, federal government obliged to publish a Public Subsidy Report every six years; FTA compiling a comprehensive report on tax expenditures with quantitative estimates. - Quasi-fiscal activities and public corporations - QFAs carried out by public corporations (Swiss Post, SBB, Swisscom, Skyguide); information on QFAs generally not presented in the annual federal budget or corporations’ annual reports. - Examples of federal appropriations/subsidies: Rail Fund appropriation CHF 1.5 billion in 2008; budget subsidy to Swiss Post to deliver newspapers CHF 30 million in 2008. - Swiss Post estimated cost of universal service obligation CHF 212 million in 2007 (independently audited and published in a PostReg report); informal estimates: CHF 150 million for Swisscom’s universal service obligation and CHF 50 million for under-financing of newspaper delivery by Swiss Post. ### Debt, liabilities, and financial asset reporting - Debt reporting and management - Gross public debt of the federal government published each quarter, within a quarter of the end of the period. - Federal debt reported by maturity and by currency; debt servicing costs separately identified. - Use of derivatives in debt management disclosed in Notes to the Annual Financial Statements. - One-off comprehensive debt report prepared in 2006 including time-series data of all levels of government. - Detailed reporting exists on debt portfolio performance, but no details of the debt management strategy are published. - Nondebt liabilities and financial assets - Main nondebt liabilities are civil service pensions; following reforms these are defined contribution schemes with residual protection for nominal value of pensions. - Government’s obligation to pay civil service pensions is not recognized as a liability on the government’s balance sheet; NAM requires disclosure in Notes. - Government publishes a full balance sheet according to international standards (IPSAS) with policy to value financial assets at market value. - Financial asset portfolios managed by SSF and Publica; information on asset allocation and performance published on their websites. ### Audit, internal oversight, and SFAO capacity - SFAO capacity and mandate - SFAO has about 95 staff, of which 65 are auditors and specialists; thirty-three staff have appropriate professional qualifications. - SFAO audit remit includes all federal government administrative units, parliamentary services, federal courts, and corporations owned more than 50 percent by the confederation. - SFAO is independent, headed by a director appointed for six years by the federal council subject to approval by the federal assembly; SFAO budget passed to parliament without modification by the executive. - SFAO prepares a report on each audit and transmits it to the joint committee on finance of parliament; annual report is published listing all SFAO reports publicly released. - Internal audit and revenue agencies - Internal audit is risk-based and effective; roles vis-à-vis external audit not clearly distinguished. - FTA and FCA have effective internal monitoring and control mechanisms; SAP used for financial management; FTA systems due for major overhaul. - FTA and FCA submit formal reports to the Department of Finance three times a year (confidential); press releases issued three times a year by the Department of Finance show revenue collection statistics. ### IMF staff commentary — overall assessment and priority recommendations - Overall assessment - Switzerland meets most aspects of the fiscal transparency code and, in most areas, matches best international practice. - Recent initiatives: introduction of accrual accounting and budgeting; NAM based on IPSAS; streamlined budget documentation; risk management framework. - Caveat: cantons and communes constitute more than two-thirds of general government; their fiscal activities significantly affect overall fiscal stance. - Priority recommendations (straightforward and relatively quick, preferably as part of the budget for 2010) - Publish in the federal government’s financial statements information on the SNB’s support operations for UBS alongside the confederation’s own activities. - Prepare and publish additional data on fiscal risks (contingent liabilities, QFAs, finances of the SSF), developing into a comprehensive fiscal risk statement to be published with the budget. - Publish more timely information on general government finances, even if initially based on preliminary or estimated data. - Include preliminary projections of revenues for 2009 in the 2010 budget. - Publish statistics and other information on tax expenditures; consider an annual tax expenditure statement with the annual budget. - Supplement basic macroeconomic and fiscal forecasts with additional scenarios and variability analysis, and extend external review of macroeconomic forecasts. - Include a summary of the fiscal impact of new policy measures introduced in the budget. - Include the SFAO’s audit opinion with the published final accounts. - Accounting and audit-related recommendations - Move towards fuller compliance with IPSAS; either recognize civil service pension obligations or clearly explain departures and obtain SFAO opinion. - Consider disclosing military assets in notes even if not capitalized. - Extend coverage of financial statements and produce consolidated financial statements for central government and all entities controlled by it (including public corporations and the SSF). - Enhance independence (or perception) of SFAO: consider modifying Art. 2.2, Art. 7, Art. 11, and Art. 12 of the Federal Auditing Act to strengthen parliamentary safeguards and clarify roles. ### Appendix — Summary assessment (selected) - Clarity of roles and responsibilities: Observed across 1.1–1.1.5. - Legal, regulatory, and administrative framework: Observed across 1.2–1.2.5. - Open budget process: - Budget calendar and preparation: Observed. - Budget realism and medium-term framework: Observed. - Description of fiscal impact of new measures: Largely observed (recommendation to include a summary statement). - Public availability of information - Central government coverage: Observed. - Comparable historical and forecast data: Largely observed (recommendation to include estimated outturn for current year). - Tax expenditures, contingent liabilities, and QFAs: Largely not observed (recommendation to expand disclosure). - Subnational and public corporation reporting in budget: Not observed (recommendation to provide overviews). - Assurance of integrity - Accounting standards and reconciliations: Observed; adopt IPSAS more fully. - Internal and external audit: Largely observed; clarify roles and enhance SFAO independence/perceived independence. - Public availability table highlights (selected) - CG budget estimates: Yes; available to the public. - CG budget outturns: Included for two years prior to the budget; not included for one year prior. Available on FFA website and SDDS. - CG contingent liabilities: Full details not in budget; available in Notes to Financial Statements. - CG tax expenditures: Not included in budget; some information in six-yearly subsidy report. - CG debt: Included and available; quarterly publication within a quarter. - CG financial assets: Available in accrual financial statements. - Sustainability analysis: Long-term reports published in 2008 and to be updated. *IMF Staff Report: EXECUTIVE SUMMARY (content unit _cr09201).* ### EXECUTIVE SUMMARY ### _cr09201 - EXECUTIVE SUMMARY ### Overview - Purpose: Assessment of fiscal transparency practices in Switzerland against the IMF Code of Good Practices on Fiscal Transparency (2007), focused on fiscal transparency at the central government (confederation) level. - Coverage: The confederation accounts for about a third of general government expenditures and revenues. - Basis: Discussions with authorities and other organizations, authorities’ response to the IMF fiscal transparency questionnaire, and other sources of information. IMF Manual on Fiscal Transparency (2007) provides further explanation of terms and concepts used. ### Key strengths and current practice - Institutional clarity and legal framework: - The fiscal role of the executive and legislative branches, and the legal framework for the management of federal public finances, are clearly defined. - The federal budget process is governed by a precise legal framework. - A coherent medium-term fiscal framework provides context for budget decisions. - Forecasting and tax administration: - The accuracy of macroeconomic forecasts compares favorably with private sector counterparts. - The legislative basis for taxation is complex due to multiple federal and cantonal codes, but is transparent and well understood. - Tax administration and taxpayers’ rights are clearly defined and efficiently delivered. - Other arrangements: - Rules for public procurement, and the employment and ethical behavior of civil servants, are clear and generally well observed. - The Swiss National Bank (SNB) is operationally independent and has no fiscal role; SNB financial instruments are stated in the balance sheet at fair value, with all valuation changes reported in the income statement. - Dividends from the SNB: maximum rate of 6 percent; remaining profits distributed to the cantons (two-thirds) and the federal government (one-third) under a 10-year agreement (reviewed after 5 years). ### Areas for further consideration to enhance fiscal transparency and risk presentation - Timeliness and scope of information: - Improve the timeliness of fiscal information relating to general government (currently compiled with a time lag of two years). - Disclose additional information on the government’s debt management strategy, tax expenditures, and contingent liabilities. - Forecasting credibility and validation: - Strengthen the credibility of macroeconomic and fiscal forecasting by increasing the use and disclosure of sensitivity analysis and deployment of alternative scenarios. - Increase external validation of forecasts. - Quasi-fiscal activities and social security transparency: - Establish a coherent framework for presenting quasi-fiscal activities in public corporations, especially postal services and railways with universal service obligations. - Strengthen the transparency of the social security system by separating the funds for old age pensions and disability. - Accounting, audit, and governance: - Announce further steps to fully comply with International Public Sector Accounting Standards (IPSAS) of financial reporting. - Clarify the functions of internal and external audit. - Reinforce the independence of the Swiss Federal Audit Office (SFAO). ### Institutional and fiscal relationships (selected details) - Definition and composition of general government (GFSM/GFS consistent): - Main components and expenditure as percent of GDP, 2006: - Federal government: 7 departments and chancellery 10.9 - of which: 4 extrabudgetary funds 0.8 - State government: 26 cantons 14.7 - Local government: 2715 communes 9.4 - Social security: 4 social security institutions 10.4 - Total (excluding double counting) 36.0 - Swiss National Bank (SNB): - Public sector (cantons, cantonal banks, and other public institutions) holds 61.5 percent of the shares. - SNB provides banking services to the federal government at fee on a full-cost recovery basis unless the activity contributes to monetary policy. - SNB coordinates with federal government on macroeconomic forecasting and prepares monetary and balance of payments statistics and quarterly forecasts of inflation. - SNB is not allowed to provide loans to the federal government or to other levels of government. - SNB support for UBS as a Quasi-Fiscal Activity (QFA): - SNB funded 90 percent of the purchase price of distressed assets to the value of US$60 billion.1 - Transaction classified as a QFA given the risk that the SNB may fail to recover all of its investment, which would lower profits distributed to the federal government and negatively impact the budget. - The support took the form of a mandatory convertible loan with obligation to convert unless sold within the next 30 months; this operation could lead to a federal government participation of about 9 percent of the capital of UBS. - Public sector debt is expected to increase by 7 percent of GDP as a result of these support measures. - SNB announced in March 2009 it will report quarterly on the SPV’s financial position and effects on SNB’s balance sheet. - Note: On February 10, 2009, it was announced that the stabilization fund would acquire UBS assets for a lower maximum amount than originally planned (approximately US$ 40 billion). - Federal ownership of nonfinancial public corporations (NFPCs): - At the federal level there are five large NFPCs with full government ownership, one large NFPC with a majority government ownership, and several smaller NFPCs. - Table of selected NFPC ownership and equity (information as of December 31, 2007): - SBB: Ownership by Government (percent) 100; Total Government Equity (CHF million) 9048 - Swisscom: Ownership by Government (percent) 52; Total Government Equity (CHF million) 2693 - Swiss Post: Ownership by Government (percent) 100; Total Government Equity (CHF million) 2280 - RUAG: Ownership by Government (percent) 100; Total Government Equity (CHF million) 774 - Skyguide: Ownership by Government (percent) 100; Total Government Equity (CHF million) 285 - SAPOMP: Ownership by Government (percent) 100; Total Government Equity (CHF million) 176 - Other: Total Government Equity (CHF million) 51 - Total: Total Government Equity (CHF million) 15307 - NFPCs governed by special laws and directives that provide operational independence but require adherence to substantial strategic directions embedded in performance directives. - NFPCs report annually to the supervising federal department; financial reports audited by private audit firms and made available to the public. - Swisscom and Swiss Post have regularly reported profits in recent years; SBB is the only NFPC of the federation that benefits from substantial subsidies. SBB and Swiss Post benefit from certain tax exemptions. - In September 2006 the federal council published new principles on the direction and control of public corporations and nonmarket nonprofit institutions; these principles are still being reviewed by the federal assembly. - Other public financial institutions and arrangements: - No government ownership of financial corporations at the confederation level prior to the 2008 support measures. - Swiss Post subsidiary PostFinance accepts deposits and plays an important role in the payments system. - Cantonal banks are partially or fully owned by cantons and typically guarantee all or part of their deposits. ### Mission and methodology - IMF staff mission visited Switzerland—Bern, Geneva, Winterthur, and Zürich—during January 16–29, 2009. The mission comprised Mr. Allen (head), Messrs. Khan and Schiller (FAD), and Mr. Petrie (from FAD’s roster of fiscal experts). - The mission met with a broad range of officials and stakeholders, including the President of the Confederation and Minister of Finance (Mr. Merz), officials from the Federal Finance Administration (FFA), State Secretariat for Economic Affairs, Federal Office of Transport, Federal Office for Buildings and Logistics, Federal Office of Agriculture, Federal Social Insurance Office, Federal Department of Home Affairs, Federal Tax Administration (FTA), Federal Customs Administration (FCA), Federal Statistics Office, finance committees of the State Council and the National Council, the Swiss Federal Audit Office (SFAO), the Fund for the Financing of Public Transport Infrastructure, Swiss Railway Company, Swiss Post, Conference of the Directors of Finance of the Cantons, representatives of cantons (Appenzell Ausserrhoden, Geneva, Solothurn), Transparency International Switzerland, Hocschule Luzern, Professor Dafflon, the Swiss Federal Social Security Fund (SSF), Centrale de Compensation (CdC), Professor Andreas Bergmann, the Swiss National Bank (SNB), Economiesuisse, Avenir Suisse, Credit Suisse, and PWC. *IMF Staff Report: EXECUTIVE SUMMARY (content unit _cr09201).* ### 7. Laws and processes governing government regulation of the private sector are ### 7. Laws and processes governing government regulation of the private sector are clear and open. 1.1.5 ### Legal and institutional framework for private-sector activity - The Obligation Law (Obligationenrecht) provides the basic framework for Swiss nationals and foreigners to do business in Switzerland. - Other important laws cited: commercial law and labor law. - Legislation allows for the formation of several types of corporations and prescribes rules for their governance. - All cantons have special offices to steer potential investors through relevant laws and regulations. - Laws and regulations are established at the federal level, but application and interpretation may differ from canton to canton. - Authority to administer funds and create incentive programs has been devolved to cantonal governments. ### Fiscal management relationship among branches of government (1.1.2) - The Federal Constitution and various laws clearly define fiscal roles and responsibilities of the executive and legislative branches in managing federal public finances. - Executive branch responsibility: budget preparation and execution. - Parliament must approve budgets and final accounts. - Parliament (the united federal assembly) consists of two equal chambers: the national council and the council of states. - Note: the national council is elected on the basis of a system of proportional representation; the council of states consists of 46 representatives, 2 for each canton and 1 for each half-canton. - Executive authority (the federal council) consists of seven members, elected by a combined assembly of both chambers of parliament. - The judiciary principally belongs to the cantons for applying federal law; the supreme court is a federal institution. ### Fiscal management relationships among different levels of government (1.1.3) - Swiss federalism is complex due to intergovernmental relations and semi-direct democracy, including extensive use of referenda. - All cantons have their own constitution, executive, parliament, and judiciary. - Relationship between cantons and communes is defined by each canton. - Cantons generally supervise communes on fiscal management issues; there is no supervisory relationship from the federal government to cantons. ### Expenditure assignments (1.1.3) - Fundamental principle: subsidiarity—tasks carried out at the lowest appropriate government level. - Expenditure assignments are exclusive, shared, or common. - The division of responsibilities is obscured in budget documents by transfers, subsidies, joint financing, and delegation of competencies. - A new system of financial equalization was introduced in 2008 to address these issues. Box 3 — Expenditure Assignments (as listed) - Confederation: national defense; foreign affairs; national roads; old age and disability insurance; accidental and occupational disease insurance; agriculture; SBB (federal railway); technical high schools; and livestock breeding. - Shared responsibilities for confederation and cantons: health insurance; student assistance (only in tertiary education); urban transportation; regional transportation; main roads; execution of penalties; official measurements and standards; protection of historic monuments, the natural environment, and water supply; protection against noise and flooding; and improvements in agriculture, forestry, wildlife, and fisheries. - Mainly by cantons: jurisdiction; police; education (all mandatory schools); health (including hospitals); cantonal roads and regional traffic; area planning; forestry; sport; and cultural institutions of supraregional importance. - Responsibilities shared among cantons: assistance for handicapped and elderly people (including construction and operation of special homes); cantonal universities; specialized higher level education; student assistance; public city transportation; airport traffic control; housing in mountainous regions; and promotion of agriculture at the cantonal level. - Mainly by communes (can vary from one canton to the other): civil protection; primary schools; culture and leisure; waste removal; clean water; and energy. ### Revenue assignments (1.1.3) - Revenues are assigned to all three levels of government; the Federal Constitution explicitly separates taxing powers vertically. - Tax codes and effective tax rates may vary significantly from canton to canton. Box 4 — Revenue Assignments (as listed) - Confederation: income tax; tax on net profits; withholding tax; military and civil service exemption tax; value added tax; stamp duties; tobacco tax; beer tax; tax on distilled spirits; mineral oil tax; motor vehicle tax; and customs duties. - Cantons: income tax; wealth taxes; poll tax or household tax; tax on net profits; tax on capital; inheritance and gift taxes; capital gains tax; real estate tax; taxes on the transfer of immovable property; motor vehicle taxes; entertainment taxes; dog taxes; stamp duties; and tax on hydraulic power stations. - Communes: income tax; wealth taxes; poll tax or household tax; tax on net profits; tax on capital; inheritance and gift taxes; capital gains tax; real estate taxes; taxes on the transfer of immovable property; trade tax; dog taxes; and entertainment taxes. ### Financial equalization (1.1.3) - Strong tendency to equalize differences in revenue and living conditions through financial equalization. - A new equalization scheme was introduced on January 1, 2008. - Main objectives of the 2008 reform: - (i) reallocation and clearer separation of tasks between the federation and the cantons; - (ii) introduction of a new system of equalization that better accounts for cantonal revenue-raising potential and specific expenditure burdens arising from topography and social-demographic structure. - The new system is based on two main pillars: - (i) calculating a resource index for each canton, taking into account personal income, business income, and wealth of the canton’s citizens; - (ii) compensating two groups of cantons for specific expenditure requirements: - cantons in mountainous regions for higher costs of delivering public services; - urban cantons with a fiscally unfavorable population structure (high share of unemployed, poor, elderly, and foreign persons). - Provision to compensate cantons that lose revenue under the new system; such support will be phased out over time. - Under the new system, no earmarked grants are paid to cantons. ### Legal and administrative framework for fiscal management (1.2.1–1.2.2) - The legal framework for public finances is clear and comprehensive. - Art. 100(5) of the Constitution allows the federation to temporarily increase taxes and duties; stabilization policies are principally rules-based (notably, the “debt brake” rule). - Cantons have similar constitutional provisions and typically their own public finance laws and regulations; many cantons have fiscal rules. - All taxes, fees, and other charges are based in law; legislation is complex but well publicized. - The Federal Law on the Harmonization of Direct Cantonal and Communal Taxes entered into force on January 1, 1993, serving as a framework law with principles on tax liability, taxable units, assessment periods, and procedures and enforcement. - Framework law provisions include: - standardized assessment periods for both individuals and legal entities; - full taxation of social welfare services and full deduction of premiums paid out; - taxation of families and dependents; - standardization of taxes deducted at source; - tax relief for newly incorporated companies. - All cantons met the eight-year timetable (terminating on January 1, 2001) for aligning their tax legislation with the framework law. - Tax competition among cantons and communes results in taxpayers in similar situations facing different effective tax rates depending on residence. - Significant volume of tax expenditures at both federal and cantonal levels; additional tax exemptions have been introduced in recent years. ### Tax administration and taxpayer rights (1.2.2) - Excise duties, customs duties, and VAT are administered by the federation; personal and company income taxes and wealth taxes are administered by cantons. - Other taxes are collected by cantons and communes. - The Federal Tax Administration (FTA) and Federal Customs Administration (FCA) are organizations within the federal Department of Finance with day-to-day independence but no constitutional or legal autonomy. - Established procedures exist for tax appeals: - Initial appeals are heard by the administration that issued the decision; the administration must ensure correct application of tax law and provides a ruling. - If the ruling favors the authority, the taxpayer may appeal to a court; appeal procedures vary by tax. - Example (federal income tax): taxpayer has the right to appeal before the cantonal tax authority within 30 days (Art. 132); if dismissed, may appeal within 30 days to the cantonal tax commission (Steuerrekurskommission, Art. 140); final appeal before the Federal Supreme Court (Bundesgericht, Art. 146). - For customs matters, legal rights are defined in the Customs Law (Art. 116); appeals are considered in a timely manner and are made public. - Rulings of the tax administration are not made public. - Taxpayers have the right to professional representation in dealings with tax and customs administrations. ### Public consultation and direct democracy (1.2.3) - Public influence on proposed laws, regulatory changes, and broader policy changes is unusually high. - Popular initiative: signatures of 100,000 people can launch a change of the Federal Constitution. - Referendum: right to referenda if 50,000 signatures are collected within 100 days. - The Public Hearing Process (Vernehmlassungsverfahren) involves expert-based discussions and consultation with political parties, economic and social groups, and international and national experts in preparing legislation. ### Legal framework for liability, asset, and debt management (1.2.5) - Legal framework for federal debt management is contained in the Budget Law (Arts. 60–62) and the Budget Regulations (Arts. 70–74); there is no special public debt law. - Debt management at the federation is the responsibility of the treasury unit within the Department of Finance, which is also responsible for cash management. - Debt management operations are overseen by an Asset and Liability Management Committee: - chaired by the director of the Federal Finance Administration (FFA); - includes a representative of the SNB; - meets quarterly to review cash and debt management operations and risk control. - Government guarantees require an appropriation in the annual budget; de facto parliament approves all guarantees. ### Privatization framework (1.2.5) - No standardized legal framework for privatization. - Only one corporation, Swisscom, has been (partly) privatized; the process was orderly and transparent. - Some cantons have undertaken privatization projects at the subnational level. ### Open budget processes (2.1.1) - Budget calendar and process are clearly defined and followed in practice; budget documentation is comprehensive and clear. - Legal base for preparing the budget is set out (see Arts. 100, 126, 159, 167, and 183 of the Constitution; Law of the Parliament of December 13, 2002; the Finance Law of October 7, 2005; and the Ordinance on Finance of April 5, 2006). - Fiscal year: calendar year basis. - Budget preparation timeline: - Phase 1 (January–February): FFA prepares medium-term fiscal framework and expenditure ceilings; federal council approves guidelines and timetable; budget guidelines issued to departments. - Phase 2 (March–April): Departments prepare budget bids; must submit bids to FFA before the end of April. - Phase 3 (May–June): Departments discuss proposals with FFA; beginning of June federal council reviews macrofiscal outlook and approves budget proposal and financial plan. - Phase 4 (July–August): FFA prepares detailed budget proposals and financial plan; federal council approves for submission to parliament by end of August. - Phase 5 (September–December): Budget proposals discussed by two finance committees; draft resolution prepared for parliamentary plenary; budget must be adopted by end of December. - The only date fixed in law (Finanzhaushaltsgesetz, FHG, Art. 29) is the submission of the budget and financial plan to parliament (end-August); other timetable steps set out in federal council guidelines. - The process within parliament is complex and lengthy due to two chambers of equal authority and strong role of finance committees. - The budget bill may be sent back and forth between chambers up to three times; unresolved differences go to a reconciliation committee; extreme differences could send the budget back to the federal council for revision (not used in practice). - Parliament has unfettered constitutional powers to amend the budget, subject to application of the debt brake rule; in practice such amendments are limited. Box 6 — Budget Documentation (as listed) - Federal Budget documents presented to parliament in August comprise five volumes: - Volume 1: stand-alone summary of the budget. - Volumes 2A and 2B: appropriations (credits) by department and agency; Volume 2B contains more detailed information. - Volume 3: supplementary information to Volume 1, including detailed and multi-annual macroeconomic forecasts, expenditures, and taxes. - Volume 4: information on special accounts (two EBFs, technical institutes, and the alcohol board). - Volume 5: the financial plan presenting medium-term revenue and expenditure estimates for the three years following the budget year. - After parliamentary amendments and budget approval, Volume 6 is published containing final detailed appropriations. - Annual financial statements follow an identical structure but do not include Volumes 5 and 6. *Source: _cr09201 - 7. Laws and processes governing government regulation of the private sector are clear and open._* ### 21. Budget forecasts and underlying macroeconomic assumptions are clearly ### 21. Budget forecasts and underlying macroeconomic assumptions are clearly presented and generally realistic ### Macroeconomic forecasting process and quality - Forecasts are produced by an inter-departmental group of experts led by the State Secretariat for Economic Affairs (SECO); a representative of the SNB participates as an independent observer, and the SNB produces and publishes its own economic forecasts. - Forecast production frequency: four times a year for the current year and one year ahead only. - Out-years in the medium-term fiscal forecasts are compiled by the FFA using its own estimates of potential growth. - Forecast publications: accompanied by a press release and a lengthy explanatory bulletin. - Data timeliness constraint: the latest data available on the general government fiscal outturn to the expert group is approximately two years old, complicating forecasting of government consumption. - External interaction and review: the expert group meets with external parties informally; there is no formalized process and no external review of the official forecasts before finalization. - Recent enhancements: an alternative forecast scenario was included for the first time in the 2009 budget documents and was compiled by the FFA after consultation with the expert group. - Historical forecast performance: a recent academic study covering 1997–2006 found the government’s forecasting record compares favorably with private forecasters. - Quantified forecast accuracy: the average error in the one-year ahead GDP forecast of the government’s group of experts was 0.9 percent. - Recommendation implied by analysis: strengthening processes for compiling macroeconomic and fiscal forecasts would help mitigate the impact of forecasting error. ### Medium-term fiscal objectives, assumptions, and fiscal rules - Medium-term statements: a presentation of the government’s medium-term fiscal policy objectives and priorities is included with the annual budget estimates. - Explicit macro assumptions: assumptions for GDP growth (real and nominal), inflation, interest rates, and exchange rates are precisely specified. - Financial plan / MTBF: the government prepares a financial plan equivalent to a medium-term budgetary framework covering the upcoming budget year and the three following years; prepared on a rolling basis so that year-two estimate becomes baseline for the next year’s budget. - Constitutional and statutory rule: Constitution (Art. 126) requires expenditures not to exceed revenues over the medium term; federal law sets a maximum level of expenditure equal to estimated revenues multiplied by a “cyclical factor.” - Debt brake rule: introduced in 2003; ensures nominal debt remains constant over the cycle excluding extraordinary expenditures and revenues. - Empirical indicator of effectiveness: gross public debt of the Federation as at end-2007 was 24 percent of GDP (for the general government it was 44 percent); projected to be 20.7 percent by end-2008, compared with 28 percent of GDP in 2002. - Amendment: Parliament passed an amendment requiring extraordinary expenditures incurred in any year to be offset over the business cycle from 2010. - Transparency on new measures: major new revenue and expenditure initiatives are normally described in budget documents, but the budget documents do not include a summary table of the estimated fiscal impact of all new policies and laws. - Tax proposals: proposals for new taxes or changes in existing taxes are not included in the budget; the Department of Finance provides a summary of tax policy objectives and changes in the commentary accompanying the budget figures. ### Fiscal sustainability analysis and long-term projections - Debt brake as primary instrument: the debt brake is the main central policy instrument used to maintain fiscal sustainability and to calculate expenditure ceilings in preparing the annual budget and MTBF. - Federal debt/GDP: preliminary estimate for 2008 is 22.8 percent. - Long-term reporting: the federal council is required to publish regular development scenarios on specific government functions taking account of long-term trends; first report (on health and long-term care) published January 2008. - FFA long-term study: FFA published Long-Term Sustainability of Public Finances in Switzerland (April 2008) projecting age-dependent public expenditures from 2005 to 2050. - Key long-term projection: baseline scenario shows the ratio of general government debt to GDP rising to 130 percent by 2050, with an estimated fiscal gap of 1.4 percent of GDP. - Update commitment: the long-term fiscal sustainability report will be updated on a regular basis. ### Coordination of budgetary and extrabudgetary activities - Two categories of extrabudgetary funds: - Four special funds (sonderrechnungen) for technical universities, railways, transport infrastructure, and the alcohol monopoly board: closely integrated into the budget process, budgets discussed and approved by parliament simultaneously with the federation budget, and information published in a separate volume. - Social Security Fund (SSF): legal entity combining funds for old age (AVS), disabilities (AI), and military and maternity insurance (EO); manages assets currently valued at around CHF 22 billion. - SSF role and governance: SSF invests and manages assets but has no responsibility for policy, legislation, oversight, or operations; these functions are handled by the Social Security Office and a network of cantonal offices plus La Centrale de Compensation (formally an office of the Department of Finance, with some 700 staff, based in Geneva). - SSF budgeting and projections: most administrative and operational costs financed by transfers to the budget out of SSF income; SSF budget determined by the fund’s governing board; SSF uses government short-term forecasts of unemployment and inflation supplemented by its own long-term assumptions; SSF may obtain treasury advances within specified limits. - Unemployment insurance: also an extrabudgetary fund with its own legal status. ### Accounting, internal control, and budget execution reporting - Accounting basis: federal government follows an accrual accounting basis for both budgeting and accounting under the New Accounting Model (NAM), effective from the 2007 budget. - Integrated IT system: an off-the-shelf SAP package is used for budgeting and accounting by all federal departments and agencies with an integrated chart of accounts (CoA) and budget classification. - Control and commitment procedures: - System tracks expenses and investment expenditures against appropriations and operates an automated control system to ensure transactions are within budgetary limits. - Commitment control exercised where orders or contractual documents exist; otherwise control exercised when the invoice is booked. - Control is against annual appropriation limits for each line item; no other in-year funding limits are used. - Long-term commitments are approved by parliament separately, recorded in the system, and disclosed in the financial statements. - Decentralized procedures and oversight: - Detailed accounting and internal control procedures are decentralized with roles and responsibilities set out in four main documents: the New Accounting Model (NAM), the SAP System Manual, the Accounting Policies Manual, and the Internal Control System Guidelines. - Secretaries general of departments and directors of offices must certify annually as part of the financial statements that statements are correctly prepared, internal control procedures have operated effectively, and no irregularities have occurred. - Departments undertake internal evaluations; example: DETEC planned an internal evaluation during 2009. - Treasury single account (TSA): in place for budget entities; departments and agencies may not open bank accounts without approval of the Department of Finance. - In-year reporting capability: - The accounting system is capable of producing accurate in-year reports on central government budget outturns. - Variances between appropriations and actual spending are disclosed in the annual financial statements. - Detailed budget execution reports for the budget sector as a whole are produced monthly with a time lag of one month. - General government reporting: general government reports are published once a year; federal consolidation is time consuming due to delays in receiving information from cantons and communes and the need to make consolidation adjustments for differing accounting policies; the federal government has no authority to mandate accounting policies on the cantons. *Source: _cr09201 - 21. Budget forecasts and underlying macroeconomic assumptions are clearly* ### 29. The legislature receives timely in-year reports on budget outturns, and ### 29. The legislature receives timely in-year reports on budget outturns, and ### In-year reporting and mid-year review - Budget execution reports on the federal government budget, including information on estimated actual revenue and expenditure for the full year, are presented to the legislature and made publicly available in June and September. - These reports are integrated with supplementary budgets and related reviews. - A third report is produced in November for the finance minister, but is not published. - Monthly budget execution data for the budgetary central government as a whole by economic line items are produced for use within the administration with a time lag of three weeks, but are not made public. - Annually, key financial data and the annual unaudited financial statements are issued to the legislature and made publicly available within, respectively, 6 and 14 weeks after the year-end. - The audit is completed later (see Audited final accounts). ### Supplementary budgets and in-year adjustments - Supplementary revenue and expenditure proposals during the fiscal year are presented to the legislature in a manner consistent with the original budget presentation and follow similar procedures as the annual budget. - Supplementary budgets are presented to the legislature in June and December. - Spending increases through supplementary budgets are not encouraged and have generally not involved significant outlays compared to the total budget: - During 2000–07, they averaged CHF 800 million, equivalent to 1.5 percent of total expenditures. - Supplementary budgets, in conjunction with conservative revenue forecasts, are the main mechanism for managing the risk of unexpected in-year variations to revenues and expenditures. - There is no contingency provision within the central government budget. - Departments have very limited authority to transfer funds between credits (parliamentary appropriations). - Standing legislative authority for spending is limited to just a few items (and does not include, for instance, debt servicing). ### Audited final accounts - Audited financial statements of the federal government are submitted to parliament within four months of the end of the fiscal year. - The auditor’s opinion on the financial statements is not attached to the financial statements published by the Department of Finance because the financial statements are published in April, while the audit report is normally signed in May. - Parliament is presented with a complete package including the financial statements and the separate audit report, but the published financial statements do not contain evidence that they have been audited or any indication of the type of the opinion provided by the Swiss Federal Audit Office (SFAO). - The audit report indicates that the audit covers only part of the published financial statements package: - The audit does not cover Section 1 of Volume 1 and Volumes 2B and 3. - The audit covers Volume 1 excluding Section 1, Volume 2A, and Volume 4. - The annual financial statements include a detailed comparison of actual outturns with the estimates included in the budget and explanations cover variances with the previous financial year. - The financial statements are published in four volumes. ### Commitment to timely publication of fiscal data - A calendar for releasing fiscal data is announced in line with Special Data Dissemination Standard (SDDS) commitments. - The federal authorities are committed to publishing: - Data on central government operations monthly, within a month of the end of the period; - Data on central government debt quarterly within a quarter; - Preliminary data on general government and the SSF annually, within six months of the end of the year; - Final general government data annually, within one year. - Actual publication is typically within these periods, except for general government data, where there is a long delay. - Data are published on the FFA’s website and on the IMF’s SDDS website. - An advance release data calendar is announced and mostly adhered to. - The Federal Budget Law requires annual publication of a financial statement and budget, and a forecast over the three years following the budget. - Parliament introduced a requirement in 2006 for two in-year reports on budget execution, including revised estimates of the budget outturn. - Regulations require the FFA to report fiscal data in accordance with the methodology of the IMF’s GFSM 2001. ### Coverage and quality of budget documents - The budget documents cover federal government fiscal activities comprehensively, but do not provide data on general government or the SSF. - The focus of the budget documents is the central government; there is no information on the financial performance or position of subnational governments. - There is no information in the published budget documents on the finances of the SSF. - Defense expenditures: - Are comprehensively covered in the budget and appropriated in the same manner as other expenditures. - Multi-year commitments under defense procurement contracts are included for information. - Two of the federal government’s 13 internal audit units are located within the department of defense. - Defense spending is audited by the SFAO and is subject to the usual parliamentary oversight. ### Coverage of fiscal reporting and subnational data - Fiscal reporting covers all of budgetary central government, including the four special funds. - The SSF is included in the general government sector and reports separately. - There is no uniform classification system for the general government, complicating production of general government data. - Cantons and communes are independent fiscal entities; the federation has no legal basis to require cantons to report their budget or fiscal outturn data. - In practice, the FFA collects and consolidates fiscal data from cantons and the largest communes, but accounting model differences require time-consuming adjustments. - Time lags for general government data: - Final general government data: about 20 months before available; - Interim data: produced within around 8 months. - For state-owned enterprises (SOEs): - Two large corporations conduct significant QFAs (Swiss Post and Swiss Rail), but there is no overview of the state corporation sector or information on individual QFAs. - Each SOE publishes independently audited financial statements in a timely manner, but there is no consolidated report on the SOE sector. ### Past and forecast fiscal data in the budget - The budget document discloses the main fiscal aggregates for two years prior to the budget year, and three years beyond the budget year. - Standard tables show the final outturn for revenues or expenditures two years prior to the budget year, but only the budgeted numbers for the current year (the year prior to the budget year). - The tables do not show the estimated outturn for the current year. - Volume 5 presents detailed three-year forward estimates of departments and agencies. ### Treatment and disclosure of fiscal risks - Comprehensive information on fiscal risks is not presented in the budget documents. - For the first time in 2009 the budget documents contained an alternative macroeconomic and fiscal scenario. - Budget documents do not generally: - Provide sensitivity of fiscal aggregates to marginal changes in forecasting parameters; - Present full information on contingent liabilities or details of QFAs. - Information on contingent liabilities: - Published in Notes to the Financial Statements with a brief narrative on the largest elements, including data on gross exposures. - The annual budget documents contain a separate appropriation for the estimated cost of calls on guarantees. - They do not present comprehensive information on contingent liabilities. ### Tax expenditures and public subsidies - Tax expenditures are extensive, but only limited information is published on them. - There is a significant volume of federal tax expenditures in Switzerland (possibly equivalent to around 10 percent of total federal revenues, depending on the benchmark used). - Under current law, the federal government is obliged to publish a Public Subsidy Report every six years; the report includes a chapter on tax expenditures but does not provide complete coverage. - The FTA is compiling its own comprehensive report on tax expenditures with quantitative estimates using both a comprehensive income tax and a consumption tax as baselines. ### Quasi-fiscal activities (QFAs) and public corporations - Some significant QFAs are carried out by public corporations, although budget subsidies also finance the cost of some non-commercial activities. - Public corporations are required by law to comply with strategic directions set by the federal government, which are published. - Swiss Post, Swisscom, SBB, and Skyguide have mandates to provide universal services. - Most corporations are profitable, although three of them (Swiss Post, Swiss Railway, and Swisscom) are required to provide services on a non-commercial basis. - Public corporations finance non-commercial services through cross-subsidies and are exempt from certain taxes. - Federal appropriations and subsidies examples: - Rail Fund appropriation for rail infrastructure investments: CHF 1.5 billion in 2008. - Budget subsidy to Swiss Post to deliver newspapers: CHF 30 million in 2008. - Information on the QFAs of public corporations is generally not presented in the annual federal budget or in the corporations’ annual reports. - Swiss Post is required to report to PostReg on universal service obligation costs and revenues from legal monopoly services. - Swiss Post has estimated the cost of their universal service obligation at CHF 212 million in 2007 (independently audited and published in a PostReg report). - Other informal authority estimates: CHF 150 million for Swisscom’s universal service obligation and CHF 50 million for the under-financing of newspaper delivery by Swiss Post. ### Publication of debt, liabilities, and financial assets - Comprehensive information is published on federal debt in line with SDDS: - Gross public debt of the federal government is published each quarter, within a quarter of the end of the period. - Federal debt is reported by maturity (short- and long-term, and medium-term debt) and by currency. - Debt servicing costs are separately identified in government fiscal reports. - The medium-term financial plan presents forecasts of debt servicing expenditures for the three years beyond the budget year. - Use of derivatives in debt management is disclosed in Notes to the Annual Financial Statements. - A comprehensive debt report was prepared as a one-off exercise in 2006 including time-series data of all levels of government. - Detailed reporting exists within government on debt portfolio performance, but no details of the debt management strategy are published. - Information is published on civil service pension obligations and guarantee exposures: - Main nondebt liabilities are for civil service pensions. - Following reforms, these are defined contribution schemes with residual protection for the nominal value of pensions. - Publica publishes data on its financial performance and position. - The government’s obligation to pay civil service pensions is not recognized as a liability on the government’s balance sheet; the NAM requires disclosure in the Notes to the Financial Statements. - NAM defines contingent liabilities and each agency is required to maintain a register; a short narrative on the largest contingent liabilities is presented in the Notes. - No federal-level PPP projects currently (some at cantonal level). - Information on government financial assets is published: - The government publishes a full balance sheet according to international standards (IPSAS) with accounting policy to value financial assets at market value. - Financial asset portfolios are managed by the SSF and by Publica; information on asset allocation and performance is published on their websites. ### Analysis of long-term public finances - Analyses of long-term finances were first published in 2008 and will be updated on a regular basis. - The federal government has published a long-term development scenario on health and long-term care and a study of long-term fiscal sustainability. - There is a requirement to publish a development scenario on a regular basis; the long-term fiscal sustainability study is anticipated to be updated periodically. ### Guide to the budget - Volume 1 of the annual budget documents contains an accessible, stand-alone 60-page summary of the main elements of the budget with user-friendly graphs and tables. - Volume 1 presents the objectives of the budget, summarizes the economic outlook, and provides an overview of revenues and revenue sharing with the cantons, expenditures and capital investments, and debt. - There is a short summary of the budgets of the special funds. - Tables present budget aggregates in both cash and accrual form, together with key fiscal indicators, and the operation of the debt brake is explained. - The FFA issues a seven-page press release summarizing the main features of the budget presented to parliament and the medium-term finance plan. *Source: _cr09201 - 29. The legislature receives timely in-year reports on budget outturns, and* ### 47. The annual budget presentation is generally consistent with international ### 47. The annual budget presentation is generally consistent with international ### Budget presentation and classification - Revenues, expenditures, and financing items are clearly distinguished, and expenditures are presented on a gross basis. 3.2.2 - Classification system is compatible with IMF’s Government Finance Statistics (GFSM 2001) and facilitates generation of GFS-consistent reports. - Budget appropriations are classified by each of the seven federal departments, by unit within each department, and by economic object (with the exception of agencies funded on a global basis). - There is no output or program classification in the appropriations; parliamentary control is at a detailed level of line item. - Chart of Accounts (CoA) follows the budget classification, and budget execution reports mirror the budget appropriations. - Budgeting remains primarily inputs-based (line item focus). 3.2.4 ### General government balance and fiscal rule - The overall fiscal balance of the federal government is the main indicator of the fiscal position. 3.2.3 - The fiscal rule guiding budget policy, the “debt brake,” is defined in cash terms; the overall balance, expressed in cash terms, is the focus of policy attention. - Detailed reporting in the budget and final accounts of compliance with the debt brake rule is provided. - An accrual measure of the overall balance is also presented in the budget and reported against. - Data on the general government balance are not presented in the budget. ### Results-oriented budgeting and global-budget agencies - Most units and agencies are appropriated on the basis of detailed line item inputs; parliamentary authorization is at the economic object of expenditure level. - Very limited flexibility exists to transfer credits between line items during budget implementation. - For many units, the budget does not contain any performance information. - 23 agencies are funded on the basis of global budgets with substantial flexibility to adjust input mixes during implementation; their budgets presented to parliament contain high-level product groups (outputs) and some performance indicators. - These agencies have four-year agreements signed with the federal council, with key performance indicators monitored by departments. - After expansion of the scheme in 2007, nearly 30 percent of federal spending (operating expenses) is provided through agencies funded on a global basis. - Consideration is being given to further extending the scheme to additional agencies. ### Integrity of budget and accounting processes - Budget data are reliable; variances between budget appropriations and actual outturns of main fiscal aggregates are disclosed to the public. 4.1.1 - Deviations between original budget and final outturn for 2005–07 (percent absolute deviation) — Table 2: - Expenditure — Ordinary recurrent primary expenditure: 2005: 2.2, 2006: 3.4, 2007: 1.9 - Expenditure — Interest expenditure: 2005: 7.9, 2006: 7.0, 2007: 3.1 - Revenue — Income tax: 2005: 1.4, 2006: 3.4, 2007: 1.4 - Revenue — VAT: 2005: 0.1, 2006: 2.9, 2007: 0.2 - Some smaller components (e.g., the railway fund, withholding tax, and stamp duty) are subject to larger forecast errors. ### Accounting standards, scope, and notable departures - Financial statements are prepared in accordance with IPSAS, with exceptions specified in government regulations. 4.1.2 - Notable departures from IPSAS: - civil service pension liabilities are not recognized but disclosed in the Notes to the Financial Statements; - military weapons and related equipment are not recognized as assets but treated as expenditures; - consolidated financial statements of all entities controlled by the federal government (public corporations, for example) are not produced. - The accounting policy on pension liabilities was decided partly to avoid raising expectations that the government may be called upon to inject additional capital in publicly-owned entities; amounts calculated in accordance with international standards (including IAS 19) and the effect of any departure are disclosed in the Notes to the Financial Statements. - Military weapons not capitalized, consistent with recommended treatment in GFSM 2001. - Phased approach to consolidation: - Phase 1 (starting in 2007): only budget entities included in financial statements. - Phase 2 (commencing in 2009): autonomous agencies closely linked to the federal government would be consolidated. - Issue to be further reviewed in 2013 to consider whether other controlled entities such as public corporations and the SSF are to be included. - A full set of financial statements (income statement, balance sheet, cash flow statement, and notes) is prepared in accordance with IPSAS for the budgetary central government as a whole. - Investment expenditures are set out in a separate statement facilitating comparison with corresponding budget appropriations. - Individual federal departments or offices are not reporting entities required to produce complete financial statements; only income and investment statements are published for these units. - Financial statements are set out in four volumes and contain detailed information and comparison with the budget and the previous year’s outturn data. ### Reconciliation practices and historical data revisions - Process of accounts reconciliation and fiscal reporting is effective under the New Accounting Model (NAM). 4.1.3 - Full set of double-entry based financial statements produced, incorporating standard reconciliation of accounts: - cash flow statement reconciles cash receipts/payments with change in cash balances; - balance sheet reconciles movements in assets/liabilities with income statement; - notes reconcile cash flows with operating activities and operating results. - Accounting information reconciled with bank accounts and budget appropriations within four months after the year-end and consistently tracked during the year. - Major revisions to historical fiscal data and changes to data classification are explained; most recent changes occurred with introduction of the NAM: - change in accounting basis and budget classification and CoA; - revaluation of assets and liabilities leading to decreases in value, reductions in excessive provisions, recognition of some assets and liabilities for the first time; - cash flow statement under NAM more comparable to previous version, though some reclassifications led to loss of comparability at detailed level; - expense data affected by change in accounting basis and CoA; revenue data impact less significant. - As part of transition, Department of Finance prepared and submitted additional documentation in response to specific inquiries (e.g., from parliament). ### Internal oversight, procurement, and controls - Public servants subject to code of behavior regulated by federal law for public personnel (Bundespersonalgesetz) and regulations for public personnel (Bundespersonalverordnung). 4.2.1 - Proposed amendment to federal law includes a new article on whistle blowing to encourage notice of irregularities and protect civil servants from retaliatory action. - No special federal agency is responsible for ensuring compliance with the government’s anti-corruption policies is monitored and enforced. - Civil service employment procedures: entry by open and competitive process; promotion determined by seniority and performance with strong emphasis on performance; external application for senior positions open and encouraged. 4.2.2 - Procurement rules and practices meet international standards; sound legal framework at federal and cantonal level. 4.2.3 - Regulations require tenders for procurement contracts above a threshold to be made public. - Procurement commission sets overall strategy and policies; central procurement office handles civilian procurement; ArmaSuisse handles military procurement; dedicated travel unit manages official travel. - Procurement implementation subject to review by internal and external auditors. - Purchases of public assets undertaken openly; any major transactions separately identified in budget and fiscal reports. 4.2.4 - Investment activities by entities such as the pension fund covered by separate laws/regulations. - No major sales of public assets have taken place recently or are planned for the near future. - Under NAM and IPSAS, major transactions in financial and nonfinancial assets should be disclosed in financial statements. ### Internal audit, tax agencies, and operational independence - Internal audit is risk-based and effective; responsibilities compared to external audit not clearly distinguished. 4.2.5 - Internal audit is not mandatory for each department and office; departments assess need based on risk management. - SFAO can request federal council to form new internal audit units. - Federal Auditing Act of 1967 governs SFAO and internal audit activities (Art. 11); financial inspectorates are responsible for control/audit of financial management in their domain. - Internal audit units are assigned to executive management but operate independently in fulfilling audit functions. - SFAO approves rules/regulations for internal audit units, coordinates and supervises effectiveness, may issue technical directives (only one such directive issued in practice), requires submission of annual audit programs and all audit reports to SFAO. - Deficiencies of fundamental or significant financial importance must be immediately brought to SFAO’s attention. - SFAO responsible for training and development of internal audit staff. - Internal audit standards developed in accordance with Swiss standards, based on IIA international standards. - SFAO reviews quality and effectiveness of internal audit function once every five years. - Main issues from recent internal audit assignments concerned implementation of the NAM; capacity to implement new accounting procedures was weak in the Department of Finance and other departments and offices; departments are making efforts to improve capacity. - FTA and FCA agencies have effective internal monitoring and control mechanisms. 4.2.6 - Extensive use of computerized systems; taxpayers can access systems for information and to lodge tax returns. - SAP used for financial management; special purpose systems used for tax and customs affairs. - FCA systems rank fifth in a World Bank logistics performance index study (2008). - FTA systems due for a major overhaul to improve capacity for monitoring and analysis. - FTA and FCA have well-established internal audit functions and follow IIA standards; subject to external audit by SFAO. - Code of conduct for tax officials consistent with ethical guidelines for public service. - Taxpayers’ rights and appeals/complaints processes are set out in legislation. - No information on results of complaints review process by FTA and FCA is published. - Operational independence and reporting of revenue agencies - FTA and FCA established through legislation setting functions, powers, and responsibilities; administratively part of the Department of Finance but operationally independent. - Procedures for appointment and dismissal of their directors are the same as for other government agencies. - Both agencies submit formal reports to the Department of Finance three times a year; these reports are confidential and provided only to the secretary general of the Department of Finance. - FCA makes some information publicly available at least once a year. - Press releases issued three times a year by the Department of Finance show statistics of revenue collection and an associated commentary. 4.2.6 - As part of its annual report to parliament, the Department of Finance reports on activities and financial operations of the revenue authorities. ### Independent external oversight (SFAO) - External audit is independent of the executive branch; mandate covers all federal government activities. 4.3.1 - SFAO defined in federal law as the supreme financial supervisory organ of the Swiss Confederation. - SFAO is an independent office headed by a director appointed for a period of six years by the federal council, subject to approval by the federal assembly. - Federal council may dismiss the director for serious infringement of duties, subject to administrative court appeal to the federal court; federal assembly’s approval is not required for such dismissals. - SFAO budget is passed to parliament without modification by the executive; parliament determines total financial resources and emoluments of the SFAO. - SFAO submits its reports directly to the legislature. - SFAO audit remit includes all federal government administrative units, parliamentary services, federal courts, and corporations owned more than 50 percent by the confederation. - SFAO has power to audit use by cantons of federal moneys where legally permitted; otherwise audits of cantonal use require canton consent. - SFAO may be invited to participate in budget and annual accounts preparation discussions and to advise on appropriation requests. - SFAO approves and coordinates internal audit units’ regulations, monitors their effectiveness, ensures coordination, and provides training. - SFAO is a member of INTOSAI; follows IAASB auditing standards for financial audits and INTOSAI standards for performance auditing assignments (incorporated in the audit manual). - SFAO activities have been subject to two recent peer reviews by supreme audit institutions of Germany and Norway with positive findings. *Italic: Summary based solely on the provided IMF source content.* ### 62. The SFAO has adequate capacity to perform the external audit role. 4.3.1 ### 62. The SFAO has adequate capacity to perform the external audit role. 4.3.1 ### SFAO capacity and specialist expertise - The SFAO has about 95 staff, of which 65 are auditors and specialists. - Thirty-three staff have appropriate professional qualifications. - Audit teams include the appropriate specialist staff. - Specialist areas: financial supervision, IT-audits, construction and procurement audit, and evaluation of economic efficiency and cost effectiveness. - The SFAO may engage external experts where execution of responsibilities requires special expertise not available in-house. ### External audit reporting, publication, and follow-up (4.3.2) - The SFAO prepares a report on each audit and transmits it to the joint committee on finance of parliament. - Other documentation submitted includes a summary of each report and comments on the SFAO’s findings by the audited agency. - The SFAO submits an annual report to the joint committee setting out: - the nature and focus of its audit activities, - its main findings and conclusions, - any audits that remain pending and the reasons for the delay. - The annual report is published and lists all SFAO reports that have been publicly released. - The SFAO alone decides whether to publish any audit report or evaluation report (Art. 14.2 of the Federal Auditing Act). If a specific unpublished audit report is requested, it would generally be made available, though this is not mandatory. - The joint committee monitors pending audits and noncompliance issues raised by the SFAO to ensure resolution. ### Government finance statistics unit role and independence (4.3.4) - The FFA is authorized by law (Bundesstatistikgesatz and Statistikerhebungsverordnung) to prepare the fiscal data of general government. - The FFA, rather than the Federal Statistics Office, has primary responsibility for fiscal data. - Article 3 of the federal statistics law requires technical independence for government units assigned to produce federal statistical data. - The government finance statistics unit within the FFA is a signatory to the Swiss Charter of Public Statistics. ### IMF staff commentary — overall assessment - Switzerland currently meets most aspects of the fiscal transparency code and, in most areas, matches best international practice. - Recent initiatives highlighted: introduction of accrual accounting and budgeting; a NAM based on IPSAS; streamlined budget documentation; a risk management framework covering all government departments. - Caveat: cantons and communes constitute more than two-thirds of general government; their fiscal activities and prerogatives can significantly affect overall fiscal stance. - Recommendation to reduce very long lags in collecting and compiling general government fiscal data, currently around 20 months. - Recommendation to give greater prominence to general government fiscal position in federal budget documents and other fiscal statements. ### IMF staff commentary — assessment against four pillars - Clarity of roles and responsibilities: - Clear definition of general government and comprehensive legal framework governing public finances and the budget process. - Fiscal roles of executive and legislative branches clearly defined. - Public corporations conform to principles of strategic planning, reporting, and corporate governance, though they carry out some significant QFAs. - Legislative basis for taxation is complex due to multiplicity of federal and cantonal codes but is transparent and well understood. - Open budget preparation, execution, and reporting: - Precise legal framework and well-defined timetable. - Regular macroeconomic forecasts with accuracy favorable to private counterparts. - Coherent medium-term fiscal framework; fiscal targets and rules (principally, the debt brake rule) clearly described. - Supplementary budgets prepared regularly (twice a year). - Public availability of information: - Fiscal data on central government are comprehensive and readily available. - Comprehensive statistics on public debt disclosed; data on certain non-debt liabilities and exposure to federal government guarantees disclosed. - Assessment of long-term trends in public finances first published in 2008. - Budget guide available to the public; budgeting remains heavily itemized and input-oriented. - Assurances of integrity: - Fiscal data prepared broadly in line with the IPSAS standard. - Effective accounts reconciliation and explanation of major revisions. - Rules for public procurement and civil service ethics clear and generally observed. - Internal audit effective though not comprehensively applied across all departments. - SFAO has sound legal basis; reports are submitted to parliament though not all are publicly available; follow-up mechanisms for audit findings are well understood. ### Areas where further measures could enhance fiscal transparency - Disclosure of additional fiscal information by the federal government: - Publish information on the SNB’s support operations for UBS in the federal government’s financial statements alongside the confederation’s own activities. - Publish findings on tax expenditures and regularly update them; consider an annual tax expenditure statement with the annual budget. - Disclose information on specific fiscal risks, including contingent liabilities and QFAs, with the budget, and eventually publish a single statement of fiscal risks. - Note on universal services: cross-subsidies by Swiss Post, Swiss Rail, and others partly finance these services; taxes and transfer payments from the budget are considered more desirable for transparency. - QFAs are disclosed only to a very limited extent. - Social Security Funds and reporting: - The Social Security Funds should be clearly distinguished. Apart from the unemployment insurance scheme, the other three funds are jointly operated. - Old age and disability pension funds cross-finance each other; first fund runs persistent surpluses used to finance deficits of the second. - Separating the three funds would increase transparency and facilitate policy discussion on sustainability. Parliament passed a bill to separate the old-age and disability pension funds; a referendum will be held in September 2009. - Include an overview of the finances of the social security sector and its relationship with the budget in short- to medium-term assessments of long-term fiscal sustainability. - Publish more forward-looking information on finances of special funds. - Macroeconomic and fiscal sensitivity analysis: - Publish more information on budget sensitivity to macroeconomic changes and an alternative macroeconomic and fiscal scenario. - Consider extending and formalizing external review of macroeconomic forecasts. - Public corporations and debt management: - Provide an overview of finances of public corporations in the budget. - Report additional information on public debt management: the debt management strategy, performance against it, and impact of parameter changes on debt-servicing costs. - Budget documentation improvements: - Publish a summary statement of all new policy measures reflected in the budget proposals, with estimates of their fiscal impact. - Encourage each federal government department to publish an annual report summarizing goals, strategic priorities, operational risks, financial results, and nonfinancial performance. ### Accounting and financial reporting recommendations - Consider moving towards fuller compliance with IPSAS. - Civil service pension obligations should either be recognized in accordance with IPSAS or, if compliance would impair fair presentation, this should be clearly explained and the SFAO should express its opinion. - For military assets, consider disclosing in notes the carrying value and other relevant details even if not recognized for GFSM 2001 compliance. - Authorities intend to extend coverage of financial statements in accordance with IPSAS; medium-term aim: produce consolidated financial statements for the central government and all entities controlled by it (including public corporations and the SSF). ### Audit-related recommendations - Enhance independence (or perception) of the SFAO in line with IPSAS: - Consider modifying Art. 2.2 of the Federal Act of the SFAO to remove the power of the federal council to dismiss the SFAO and give parliament that power, while retaining protection of the court. - Consider reviewing and revising Art. 7 to remove non-audit services that may present a conflict of interest. - Consider revising Art. 11 to transfer supervision, regulation and methodology development, coordination, and training of internal auditors from the SFAO to the executive (for example, a centralized harmonization unit within the Department of Finance). - Modify Art. 12 to eliminate any possible interpretation that the federal council can arbitrate if the audited entity objects to an SFAO decision. - Audit opinion and publication practices: - The audit report should clearly express an audit opinion on whether the financial statements present a true and fair view or are presented fairly in all material respects, beyond confirming compliance with legal requirements. - Consider including such a requirement in the law on the SFAO. - The published annual financial statements should include the audit report; consider modifying current practice of publishing unaudited financial statements first and the audit report later. ### Next steps — measures the IMF considers straightforward and relatively quick (preferably as part of the budget for 2010) - Publish in the federal government’s financial statements information on the SNB’s support operations for UBS alongside the confederation’s own activities to strengthen financial institutions. - Prepare and publish additional and readily available data on fiscal risks, such as contingent liabilities, QFAs, and the finances of the SSF, developing over time into a comprehensive fiscal risk statement to be published with the budget. - Publish more timely information on general government finances, even if initially based on preliminary or estimated data. - Include preliminary projections of revenues for 2009 in the 2010 budget. - Publish statistics and other information on tax expenditures. - Supplement basic macroeconomic and fiscal forecasts with additional scenarios and variability analysis, and extend external review of macroeconomic forecasts. - Include a summary of the fiscal impact of new policy measures introduced in the budget. - Include the SFAO’s audit opinion with the published final accounts. *Source: IMF staff report excerpt.* ### Appendix I. Summary Assessment of Practices ### Appendix I. Summary Assessment of Practices ### Clarity of Roles and Responsibilities - 1.1 The government sector should be distinguished from the rest of the public sector and from the rest of the economy: Observed. - 1.1.1 The structure and functions of government should be clear: Observed. General government is defined consistently with Government Finance Statistics (GFS) principles, and is well covered in the budget process. - 1.1.2 The fiscal powers of the executive, legislative, and judicial branches of government should be well defined: Observed. The fiscal roles of the executive and legislative branches are clearly defined in law. - 1.1.3 The responsibilities of different levels of government, and the relationships between them, should be clearly specified: Observed. The responsibilities of different levels of government and the relationships between them are complex, but clear and well understood. - 1.1.4 Relationships between the government and public corporations should be based on clear arrangements: Observed. The relationship between government and public corporations is clear. - 1.1.5 Government relationships with the private sector should be conducted in an open manner, following clear rules and procedures: Observed. Government relationships with the private sector are conducted in an open manner. The laws governing this relationship are clear. ### Legal, Regulatory, and Administrative Framework - 1.2 There should be a clear and open legal, regulatory, and administrative framework for fiscal management: Observed. - 1.2.1 Collection, commitment, and use of public funds governed by comprehensive laws and procedures: Observed. The legal framework for management of public finances is clear and comprehensive. - 1.2.2 Laws and regulations related to the collection of tax and nontax revenues should be accessible and timely in appeals: Observed. All taxes, fees, and other charges are based in law; legislation is fragmented and complex, but well publicized. - 1.2.3 Sufficient time for consultation on proposed laws and regulatory changes: Observed. The influence of the public on proposed laws, regulatory changes, and broader policy changes is unusually high. - 1.2.4 Contractual arrangements between government and public or private entities should be clear and publicly accessible: Observed. Contractual arrangements are limited. There are no PPPs at the federal level. - 1.2.5 Government liability and asset management should have an explicit legal basis: Observed. There is a clear legal framework for managing public debt. There is no legal framework for privatization, but only one corporation has been (partly) privatized. ### Open Budget Process — Preparation, Execution, and Reporting - 2.1 Budget preparation should follow an established timetable and be guided by well-defined macroeconomic and fiscal policy objectives: Observed. - 2.1.1 A budget calendar should be specified and adhered to: Observed. The budget calendar and process are clearly defined and are followed in practice; budget documentation is clear and comprehensive. - 2.1.2 Annual budget should be realistic and within a medium-term framework: Observed. Budget forecasts and underlying macroeconomic assumptions are clearly presented and generally realistic. A statement on fiscal policy objectives is included. Fiscal rules (the “debt brake”) and targets are clearly explained. - 2.1.3 Description of major expenditure and revenue measures and their budgetary impact: Largely observed. Major new revenue and expenditure initiatives are normally described in the budget documents, but there is no summary statement of their economic and budgetary impact. - Recommendation: A summary statement of the fiscal impact of new policy measures could be included in the budget documentation. - 2.1.4 Budget documentation should include an assessment of fiscal sustainability: Observed. An assessment of fiscal sustainability is included, and analyses of long-term trends such as population aging are published. - 2.1.5 Mechanisms for coordination and management of budgetary and extrabudgetary activities: Observed. Mechanisms are well defined. - 2.2 Procedures for budget execution, monitoring, and reporting: Observed. - 2.2.1 Accounting system should track revenues, commitments, payments, arrears, liabilities, and assets: Observed. Accounting and internal control procedures provide a reliable basis for a modern financial management system. - 2.2.2 Timely mid-year report and at least quarterly updates: Observed. The accounting system can produce accurate in-year reports on central government budget outturns. The legislature receives timely in-year reports and undertakes a mid-year review. - 2.2.3 Supplementary revenue and expenditure proposals should be presented consistent with the original budget: Observed. Supplementary budgets are presented to the legislature twice a year and follow similar procedures as the annual budget. - 2.2.4 Audited final accounts and audit reports should be presented and published within a year: Largely observed. The audited final accounts are available within six months of the end of the fiscal year. - Recommendation: The published annual financial statements should include the audit report. The audit report should clearly express an audit opinion on financial statements subject to audit that goes beyond confirming compliance with legal requirements and include an opinion on whether the statements present a true and fair view or are presented fairly in all material respects. ### Public Availability of Information - 3.1 The public should be provided with comprehensive information on past, current, and projected fiscal activity and on major fiscal risks: Largely Observed. - 3.1.1 Budget documentation and fiscal reporting should cover all central government budgetary and extrabudgetary activities: Observed. The budget documents and fiscal reporting cover all of the central government. - 3.1.2 Comparable information for at least two preceding fiscal years and forecasts for at least two years following the budget: Largely observed. Budget documents disclose main fiscal aggregates and detailed data for the two years prior and three years beyond the budget year. For the current year (the year prior to the budget year), budget tables show only the budgeted numbers, not the estimated outturn. - Recommendation: Present both the budget and the estimated outturn data for the current year to show reliability of budget data. - 3.1.3 Statements on tax expenditures, contingent liabilities, and QFAs should be part of the budget: Largely not observed. Budget documents contain only limited information on contingent liabilities, and none on tax expenditures or QFAs. For the first time, in 2009 the budget contained an alternative macroeconomic and fiscal scenario. - Recommendation: Present information on tax expenditures in the annual budget and expanded treatment of fiscal risks (fiscal sensitivity, QFAs, and full information on contingent liabilities), including with regard to financial sector support operations. - 3.1.4 Receipts from all major revenue sources should be separately identified in the annual budget: Observed. - 3.1.5 Publish information on level and composition of debt, financial assets, and significant nondebt liabilities: Observed. Comprehensive information is published on public debt. Annual financial statements report civil service pension obligations, guarantee exposures, and financial assets. - 3.1.6 Budget documentation should report subnational governments and public corporations: Not observed. The focus is the central government. There is no information on financial performance or position of subnational governments or public corporations. - Recommendation: Provide an overview of the finances of subnational governments, and of the public corporations sector, in the annual budget documents. - 3.1.7 Government should publish a periodic report on long-term public finances: Observed. Both a long-term scenario for spending on health and long-term care, and long-term fiscal projections have been published. Analyses were first published in 2008 and will be updated regularly. - 3.2 Fiscal information should facilitate policy analysis and promote accountability: Largely Observed. - 3.2.1 A clear and simple summary guide to the budget should be widely distributed: Observed. Volume 1 is an accessible 60-page summary of the main elements of the budget, accompanied by a seven-page press release. - 3.2.2 Fiscal data should be reported on a gross basis and expenditure classified by economic, functional, and administrative category: Largely observed. The annual budget presentation is generally consistent with the GFSM 2001 standard. - 3.2.3 The overall balance and gross debt should be standard summary indicators and supplemented where appropriate: Largely observed. The overall balance of the federal government is the main indicator. Since 2007, the federal government has presented the overall balance on both cash and accrual basis. - Recommendation: An overview of the finances of the social security system should be presented in the annual budget documents. Some outturn information on the general government balance would be useful for determining the appropriate federal fiscal stance. - 3.2.4 Results relative to objectives of major budget programs should be presented annually: Largely not observed. Budgeting remains on a line item inputs basis, although some agencies have global budgets and performance indicators. The number of agencies appropriated on the basis of global budget was doubled in 2007. Consideration is being given to the future of the scheme. - 3.3 Commitment to timely publication of fiscal information: Observed. - 3.3.1 Timely publication of fiscal information should be a legal obligation: Observed. There are specific commitments to timely publication. - 3.3.2 Advance release calendars for fiscal information should be announced and adhered to: Observed. ### Assurance of Integrity - 4.1 Fiscal data should meet accepted data quality standards: Observed. - 4.1.1 Budget forecasts and updates should reflect recent trends and policy commitments: Observed. Budget data are reliable and the variance between budgeted and actual outturns of the main fiscal aggregates are disclosed to the public. - 4.1.2 Annual budget and final accounts should indicate accounting basis; follow generally accepted accounting standards: Observed. The federal government adopted IPSAS with effect from 2007. Financial statements disclose accounting policies. The budget and financial statements are prepared on a comparable accrual basis. - Recommendation: Consider moving towards fuller compliance with IPSAS. In particular, civil service pension liabilities should be disclosed or reasons for departure from IPSAS disclosed. Coverage of financial statements should be extended, and consolidated financial statements of all controlled entities should be prepared. - 4.1.3 Data in fiscal reports should be internally consistent and reconciled: Observed. Internationally accepted accounting standards are used and a statement on the accounting basis is included. - 4.2 Fiscal activities should be subject to effective internal oversight and safeguards: Largely Observed. - 4.2.1 Ethical standards for public servants should be clear and well publicized: Observed. Public servants are subject to a code of behavior which is widely observed. - 4.2.2 Public sector employment procedures and conditions should be documented and accessible: Observed. Civil service employment procedures are clear and well understood. - 4.2.3 Procurement regulations meeting international standards should be accessible and observed: Observed. Procurement rules and practices meet international standards, and are well known and observed in practice. - 4.2.4 Purchases and sales of public assets should be undertaken in an open manner: See answer to 4.2.3. - 4.2.5 Government activities and finances should be internally audited and audit procedures open to review: Largely observed. Internal audit is based on a risk management approach and is effective; however, its responsibilities compared to those of external audit are not clearly distinguished. - Recommendation: Clarify roles and responsibilities of internal audit in accordance with international standards. - 4.2.6 The national revenue administration should be legally protected from political direction and report regularly: Largely not observed. The FTA and FCA are operationally independent; only limited information on their activities is publicly available. - 4.3 Fiscal information should be externally scrutinized: Largely Observed. - 4.3.1 Public finances and policies should be subject to scrutiny by an independent national audit body: Observed. External audit is independent of the executive branch, and its mandate covers all federal government activities. - Recommendation: The independence of the SFAO or the perception of it should be further enhanced. - 4.3.2 The national audit body should submit all reports to the legislature and publish them; mechanisms should monitor follow-up: Largely observed. External audit reports are submitted to the legislature but not always published, and audit findings are systematically monitored. - 4.3.3 Independent experts should be invited to assess fiscal and macroeconomic forecasts: Largely not observed. While the inter-departmental expert group discusses forecasts with external parties, the process is not formalized and there is no external review of official forecasts. - Recommendation: Consider extending and formalizing the external review of macroeconomic forecasts. - 4.3.4 A national statistical body should have institutional independence to verify fiscal data quality: Observed. The government finance statistics unit within the FFA has primary responsibility for preparing fiscal data and acts with the required institutional independence. ### Appendix II — Public Availability of Information: Key Items (selected) - 1. Central government (CG) budget estimates: Included in Budget/Report Documents? Yes. Available to the Public? Yes (published/internet). Paragraph reference: 21 (2.1.1). - 4. CG budget outturns: Included? Yes, two years prior to budget; No, one year prior to budget. Available? Yes, website of FFA, and SDDS. Paragraph reference: 30 (2.1.2). - 5. CG budget forecasts: Included? Yes, for budget plus following three years. Available? Yes, in Volumes 2A, 2B, and Volume 5 (medium-term finance plan). Paragraph reference: 22 (2.1.2). - 6. CG contingent liabilities: Included? Full details in budget on one guarantees program. No contingency provision in budget. Available? Yes, in Notes to Financial Statements. Paragraph reference: 40 (2.1.3). - 7. CG tax expenditures: Included? No. Available? Some information in six-yearly subsidy report. Paragraph reference: 41 (2.1.3). - 9. Macroeconomic assumptions: Included? Yes, Volumes 1 and 3. Available? Yes, through SECO press release each quarter. Paragraph reference: 22 (3.1.3). - 10. Analysis of fiscal risks/sensitivity analysis: Included? No sensitivity analysis. An alternative macroeconomic scenario in 2009 budget (Volume 3). Available? No / Yes. Paragraph reference: 39–42 (3.1.5). - 11. CG debt: Included? Yes (stock, and medium-term debt servicing). Available? Yes. Paragraph reference: 43 (2.1.4). - 12. CG financial assets: Included? No. Available? Yes, in accrual financial statements. Paragraph reference: 45 (2.1.4). - 13. Sustainability analysis: Included? No. Available? Long-term reports on fiscal sustainability and health spending in 2008. Paragraph reference: 26, 46 (3.1.1). - 15. CG monthly/quarterly reports on fiscal outturn: Included? Monthly reporting on central government outturn on FFA and SDDS websites. Available? Yes. Paragraph reference: 29 (3.4.1). - 17. CG final accounts: Included? Yes, for final outturn for two years prior to budget. No, for final outturn one year prior to budget. Available? Yes, annual financial statements. Paragraph reference: 32 (3.4.2). *Appendix I. Summary Assessment of Practices; Appendix II. Public Availability of Information—A Summary.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09201.pdf_