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Economic Research Swiss Issues Regions Living and Commuting: Where's the Least Expensive Place to Live? Disposable Income in Switzerland May 2011 Economic Research Publishing details Published by Martin Neff, Head Credit Suisse Economic Research Uetlibergstrasse 231, CH-8070 Zurich Contact regionen.economicresearch@credit-suisse.com Tel. +41 (0)44 334 74 19 Authors Dr. Sara Carnazzi Weber Fabian Hürzeler Thomas Rühl Jonas Stoll Cover Picture Route network BERNMOBIL © BERNMOBIL Copy Deadline April 24, 2011 Evaluations for Swiss Municipalities Fact sheets for selected municipalities are available on request. They contain detailed evaluations of disposable income and the cost of commuting on the lowest regional level. Fact sheets can be ordered under the following link: www.credit-suisse.com/research  Swiss Economy  Regions Visit Our Website at www.credit-suisse.com/research Disclaimer Publishing details This document was prepared by Credit Suisse Economic Research, and does not constitute the results of any financial analysis by ourselves or others. As a result, the "Directives on the Independence of Financial Research" issued by the Swiss Bankers Association do not apply to this document. This publication is for information purposes only. The views expressed herein are those of Credit Suisse Economic Research at the time of going to print (we reserve the right to make amendments). This publication may be quoted providing the source is indicated. Copyright © 2011 Credit Suisse Group AG and/or companies affiliated to it. All rights reserved. Swiss Issues Regions Economic Research Contents Summary 4 1 1.1 1.2 5 5 1.3 1.4 1.5 Concept and Methodology Factors of Income and Expenditure Case Types, Regulation Levels, and Regional Market Structures Mobility Expenditure Calculating the Freely Disposable Income Indicators of Disposable Income 6 7 9 10 2 2.1 2.2 Results Disposable Income in the Swiss Cantons Disposable Income in the Swiss Municipalities 12 12 15 3 Selected Components of Financial Residential Attractiveness Tax Burden Housing Costs Regional Differences in Commuting Costs and Tax Deductions Health Insurance Premiums Premium Reductions for Compulsory Health Insurance 3.1 3.2 3.3 3.4 3.5 Appendix 17 17 18 19 21 22 25 Swiss Issues Regions 3 Economic Research Summary Living costs are not the same everywhere. Swiss households can optimize their budgets by moving to a different location. Substantial savings can be achieved, sometimes by moving only within a short distance. Besides the well-known differences in the tax burden, other factors determine the financial attractiveness of a municipality for living. Different real estate prices, health insurance premiums, family allowances and other factors in sum lead to significant differences between localities. A comprehensive indicator of the financial attractiveness of a municipality for living is the freely disposable income, which denotes the amount of money that remains available to a household after the deduction of all mandatory charges and fixed costs. The analysis of the financial residential attractiveness of Swiss municipalities and cantons was first conducted in 2006, and updated in 2008. Our latest calculation takes account of commuting costs. Depending on the distance to work and the chosen mode of transport, this expenditure can have a significant impact on your household budget. However, mandatory charges and housing costs are still the major factors influencing the financial residential attractiveness. In previous calculations, Appenzell Innerrhoden took the top position in the cantonal ranking for financial residential attractiveness. This year it has been displaced by Uri. Since 2009, middleclass households in Uri have benefited from a considerable reduction in the tax burden. At the same time, housing costs are comparatively low. On the RDI indicator scale, which expresses the freely disposable income for broadly defined middle-class households, the mainly urban cantons of Geneva, Basel-Stadt, Vaud, Basel-Landschaft and Zurich continue to post values below the average. High rents and real estate prices, particularly in the cantons of Western Switzerland as well as above-average mandatory charges make living in the centers an expensive proposition. Living in peripheral urban areas can be much cheaper despite higher commuting costs, as the RDI indicator at municipality level shows. Even moving from a city center to a suburban area can sometimes generate considerable savings. Agglomerations in the cantons of Thurgau, Schaffhausen, Schwyz, Solothurn, Lucerne and Aargau are particularly attractive to households that require a large living space, but seek to avoid an excessively long commute to work. A detailed analysis of the various cost factors highlights a number of surprising findings. The tax burden is evidently still skewed along the east/west axis. The fierce tax competition in Central Switzerland and the Zurich area has clearly not yet reached the cantons in the Western half of the country. In the Lake Geneva area it is therefore differences in housing costs that have the greatest impact. Municipalities in Fribourg in the immediate vicinity of the major center of Lausanne benefit in this respect. They are financially attractive places to live in relative terms, and for several years they have reported significant immigration. Cantonal reductions in health insurance premiums accentuate the differences in the net charge on households from one part of the country to another. Viewed overall, these reductions tend to be larger in areas where premiums are already low. The highly topical tax-deductibility of commuting costs is handled very differently from one part of the country to another. In some cantons deductions can amount to tens of thousands of francs, while in others they are restricted to the minimum actual public transportation costs. Our objective in analyzing the financial attractiveness of different residential locations is to make regional differences as transparent as possible. This will enable households to make rational, fact-based decisions about where to live, avoiding false conclusions. With this in mind, we have prepared fact sheets with detailed evaluations at municipal level. Information on orders can be found in the publishing details. Swiss Issues Regions 4 Economic Research 1 Concept and Methodology The amount that remains to a household after the deduction of mandatory charges and fixed costs for free consumption depends on household characteristics and the location. Transfer revenues, mandatory charges, costs for housing and ancillary costs are different depending on the household size, living conditions, labor income and assets. This year, for the first time, fixed costs include mobility costs, i.e. the costs of commuting to Switzerland's main labor market centers. The concept of disposable income together with suitable aggregated indicators allow us to handle this diversity and to assess the relative financial attractiveness of different cantons or municipalities. 1.1 How much money is left at the end of the month for consumption? Factors of Income and Expenditure The financial attractiveness of a region for living depends on a number of regionally different factors related to income and expenditures. Beside taxes imposed on the federal, cantonal and municipal level, numerous other components of the budget should be considered (Figure 1). Discretionary household spending can be divided into different categories, depending on its significance and its time pattern. For example, whether to buy or rent a home is basically a discretionary decision, but forms a basic need. Moreover, it has a long-term characteristic, since reversing it involves significant transaction costs. Housing costs and associated expenditures can thus be interpreted as a household's fixed costs. Other significant expenditure, for example on insurance, also has long-term implications, but cannot be regarded as existential in a narrow sense. Commuting costs vary widely in their impact on household budgets. Depending on the distance between home and work as well as on the mode of transport, the daily costs for commuting can amount to considerable numbers. Since they result from a household's living and working situation and are essential for livelihood, they can also be regarded as part of location-dependent expenditures. Other costs related to mobility – arising from private travels or shopping trips – however, are mainly a result of discretionary decisions. Figure 1 Expenditures of Private Households Examples depending on types of consumption decisions and commitment horizon Statutory Obligation Discretionary Expenditure Essential expenditure - Income tax - Wealth tax - Social insurance contributions - Compulsory health insurance Short-term - Cost of food commitment - Spending on clothing Discretionary consumption decision - Various consumer spending - Spending on entertainment - Housing costs - Insurance Long-term - Spending determined by place of - Media and telecommunications commitment residence subscriptions (ancillary costs, charges) Mobility - Commuting costs (travel passes, - Supplementary mobility costs kilometer costs) (e.g. leisure and shopping trips) Source: Credit Suisse Economic Research Considering all locationdependent spending In order to determine the freely disposable income, we consider a household's mandatory expenditure as well as long-term expenditure and commuting costs – the so-called fixed costs (colored blue in figure 1). Spending that is subject to short-term consumption decisions is not included, however – since it is neither related to the decision on where to live nor is it binding. Swiss Issues Regions 5 Economic Research The average Swiss household has a freely disposable annual income of CHF 57'690 The budget of an average household covers a variety of income sources and expenditure items (Figure 2). The bulk of the average Swiss household's gross income, around 76.4%, is earned income. Investment and rental income accounts for 3.8% of gross income, while transfer income and pension/social insurance payments add up to 18.1%. This proportion has decreased by 2.4% since the last calculation in 2006, the base year, after having consistently risen for many years due to the aging population. The reason lies in a disproportionate rise in incomes during this period. Figure 2 Budget of an Average Swiss Household, 2008 In CHF per year; average household size: 2.2 people 100'000 Income Transfer income Expenditure Taxes Compulsory health insurance Social insurance contributions Investment and rental income 2nd pillar contribution 80'000 40'000 20'000 Disposable income 60'000 Earned income Commuting Housing costs Ancillary costs Freely disposable income 120'000 Energy and electricity 0 Source: Federal Statistical Office, Credit Suisse Economic Research Health insurance premiums and social insurance payments are a heavy burden On the expenditure side, 29% of gross income goes in mandatory charges, 11.7% – almost half – on income and wealth taxes. Contributions to social insurance and pension funds (2nd pillar) together with premiums for compulsory health insurance gulp another 15.1% of gross income. This figure has slightly decreased since the last calculation in the base year 2006, although premiums have increased. Once again, the rising income has compensated for the premium increase. Disposable income denotes the sum available to households after the deduction of mandatory charges. It ammounted to CHF 77'585 in 2008, CHF 5'575 more than in 2006. Fixed costs account for 18.2% of gross income, and can be divided into housing costs (11.9%), ancillary costs (2%), electricity and energy costs (1.3%) and commuting costs (3.0%). Deducting fixed costs leaves the average Swiss household with a freely disposable income of CHF 57'690 (52.8% of gross income) for further consumption and saving. 1.2 Case types: the individual viewpoint Case Types, Regulation Levels, and Regional Market Structures Depending on earned income, assets, household characteristics and living conditions, income and expenditure can be significantly different. Figure 3 shows the household characteristics that are taken into account, which in combination yield around 60'000 case types. Depending on the specific assumptions about commuting distances this number will further increase. In order to take account of the differences between households, we have calculated the freely disposable income for all these case types in the various territorial units. Swiss Issues Regions 6 Economic Research Figure 3 Case Types for the Analysis of Disposable Income Characteristic Household types Number of Specification types 4 Single Married, no children Married, two children Retired couple Rental apartment, 60 m Fitted out to medium standard 2 Rental apartment, 100 m Fitted out to medium standard Rental apartment, 150 m Fitted out to medium standard Condominium Fitted out to medium standard Condominium Fitted out to high standard Single-family house Fitted out to medium standard 2 Housing Types 7 Earned income 101 Ranging from CHF 0 to 500'000 Wealth 21 Ranging from CHF 0 to 5'000'000 Commuting 5 No commuting 2 Commuting to the nearest large or medium-sized center, public transportation Single-family house Fitted out to high standard Commuting to the nearest large or medium-sized center, private motor vehicle Source: Credit Suisse Economic Research Regional differences in the income and expenditure components of households in Switzerland A large part of the prices underlying household expenditure are subject to substantial regional differences owing to the Swiss system of financial federalism or to local differences in market structures. They are the reason for the differences in disposable income at the regional level. This forms the basis of the financial criteria in the competition among Swiss regions, and it is at the core of the present analysis. Figure 4 illustrates the various income and expenditure factors, the corresponding regulation level and the scope of the market structure, respectively. More detailed information on data sources can be found in the Appendix. Figure 4 Regional Differences in Types of Income and Expenditure By regulation level or the regional scope of the market structure Federation Transfer income (FA, PR) Income tax Cantons Municipaities Other    Imputed rental value for owner-occupiers    Wealth tax   2nd pillar contributions  Social insurance contributions (AHV, IV, EO, ALV, NBU)  Compulsory health insurance premiums Premium regions Housing costs  Ancillary costs/charges  Energy/electricity  Mobility costs (commuting)   Tax deductions for commuting costs   depending on distance from the workplace and transportation mode depending on distance from the workplace and transportation mode Legend: FA: family allowances; PR: premium reductions; AHV: Federal Old Age and Survivors' Insurance; IV: Federal Disability Insurance; EO: Income replacement scheme; ALV: Unemployment insurance; NBU: Non-occupational accident insurance Source: Credit Suisse Economic Research 1.3 Mobility Expenditure For the first time since this study was launched in 2006, in this year's issue the costs of personal mobility are considered and deducted from the freely disposable income for each of the specific case types. The costs which are relevant for the indicator include the real costs that arise because of commuting from home to work and back. These "commuting costs" depend on the distance between home and work as well as on the mode of transportation. They can give Swiss Issues Regions 7 Economic Research rise to significant differences in the freely disposable income. Non-monetary costs, such as the time spent for commuting, are hardly quantified in Swiss francs and hence are not considered in our calculation. Taking account of mobility costs enhances the explanatory power of the concept of financial residential attractiveness, as the benefits from living in a remote, low-cost location are often "bought" at the cost of long-distance, high-cost commuting. Due to the large number of cases that result from the many possible combinations, the explanatory power would be moderate, such that we limit our calculations to the major commuting journey, for each municipality: from home to the nearest major or medium-sized center. Centers are defined in accordance with the municipal typology of the Swiss Federal Statistical Office. The displayed numbers represent costs of commuting both by public transportation and private motor vehicles. The costs are calculated on an annual basis, assuming an average of 193.4 working days. Public transportation costs are based on the prices of the minimum annual season ticket (travel pass) provided by the regional travel systems for the relevant zones. Where journeys are not covered by at least one regional travel system, the costs equal the price of an SBB point-topoint season ticket or a GA (Generalabonnement). In the case "Married, no children" it should be considered that a so-called "partner GA" is available at reduced price. Calculating the full costs of commuting by private motor vehicle The costs of commuting by private motor vehicle are based on the cumulated annual distance of the commuting journey. Appropriate vehicle types are then assigned to the various case types. They are taken from technical data on the vehicles most sold in Switzerland in 2010 (Figure 5). The fixed costs are divided in terms of whether they relate to commuting or other vehicle usage, assuming non-commuting motoring of 6'619 km a year (adjusted for the type "Married, no children"). The variable costs per kilometer can be charged directly. Figure 5 Commuting by Private Motor Vehicle: Cost Overview Fixed costs per year Variable costs Cost factor Calculation basis Annual depreciation Return on capital Road tax Third-party liability insurance 10% of list price (straight-line) 0.375% of half the list price (approximate) Dependent on the canton of residence and vehicle parameters CHF 600 Partial accidental damage insurance 1.2% of the list price Garaging costs CHF 1'500 Incidental expenses CHF 240 Vehicle care Depreciation CHF 150 2% of the list price per 10'000 km Fuel costs Dependent on fuel consumption with gasoline at CHF 1.68 per liter (correct at the time of calculation) Costs for tires 4 x CHF 250 per 30'000 km Repairs, servicing, exhaust maintenance CHF 680 per 10'000 km Source: Touring Club Schweiz, Credit Suisse Economic Research Hypothetical Example 1: Mr. Monod, living in Geneva Mr. Monod recently graduated from the University of Geneva and is now working in Lausanne. He is single and lives in a 60-square-meter rental apartment. Mr. Monod earns an income of CHF 75'000, and he has inherited assets of CHF 50'000. After the deduction of all mandatory charges, his disposable income amounts to CHF 47'900. After considering housing costs, ancillary and electricity costs, Mr. Monod is left with CHF 25'700. In addition, he pays CHF 2'385 for his travel pass from Geneva to his place of work in Lausanne. By moving to Lausanne, Mr. Monod could save 30 minutes each way as well as the annual costs for the travel pass. His freely disposable income in Lausanne would total CHF 29'300, which corresponds to an increase of 14%. Swiss Issues Regions 8 Economic Research 1.4 Calculating the Freely Disposable Income The first step in determining the freely disposable income is to calculate a household's gross income, which equals the sum of earned and pension income, investment income, and transfer income from public redistribution systems (Figure 6). What remains after the deduction of mandatory charges constitutes the disposable income. Households are free to spend this amount as they think fit. However, their fixed living costs have not yet been taken into account. Figure 6 Calculating the Freely Disposable Income By type of residence and main income source Gainfully-employed tenants Gainfully-employed homeowners Earned income, gross Earned income, gross Pensioners Pension income (AHV, pension) + Transfer income (PR, FA) + Transfer income (PR, FA) + Transfer income (PR, FA) + Capital income (interest, dividends) + Capital income (interest, dividends) + Capital income (interest, dividends) = Gross income = Gross income = Gross income - - Income tax (basis: gross income, mobility deductions) - Income tax (basis: gross income, imputed rental value, mortgage interest, mobility deductions) Wealth tax - Wealth tax - 2nd pillar contributions - 2nd pillar contributions - Social insurance contributions (AHV, IV, ALV, EO etc.) Compulsory health insurance premiums - Social insurance contributions (AHV, IV, ALV, EO etc.) - Compulsory health insurance premiums - Compulsory health insurance premiums = Disposable Income = Disposable Income = Disposable Income - Net rental costs - Housing costs (depending on the type of residence) - Ancillary costs, costs of water, sewage, waste disposal Energy and electricity costs - Owner-occupation costs (mortgage interest, capital repayments for any 2nd mortgage, maintenance) - Ancillary costs, costs of water, sewage, waste disposal - Energy and electricity costs - Commuting costs - Commuting costs = Freely Disposable income = Freely Disposable income - Income tax (basis dependent on the type of residence) - Wealth tax - Ancillary costs, costs of water, sewage, waste disposal - Energy and electricity costs = Freely Disposable income Source: Credit Suisse Economic Research Regional cost differences that play a role in the competition among residential locations, are not restricted to mandatory charges, but also apply to costs of existential consumption. The freely disposable income is calculated by subtracting housing costs (rental or owner-occupation), ancillary costs, costs of water, sewage and waste disposal, electricity and energy charges as well as commuting costs. Hence, the freely disposable income represents the amount remaining to the household for consumption or saving. Differentiated assessment depending on type of residence and income source Depending on the type of residence and a household's major source of income, some factors must be assessed differently. Owner-occupiers, for example, enjoy an additional tax privilege in that their mortgage interest is deductible when calculating their taxable income – though this is increased by an imputed rental value. In addition, property ownership – besides incurring mortgage interest, repayment and maintenance costs – reduces the owner's income-producing assets. All cantons permit deductions to be made from taxable income in respect of expenditure on work-related travel. This system differs from canton to canton, but it reduces the tax burden of commuters all over. In the case of pensioners, whose main income stems from pension payments instead of earned income, mandatory charges are significantly lower, since they pay no social insurance contributions. Furthermore, as pensioners – by definition – are no longer gainfully employed, they incur no commuting costs. Based on this approach, we have calculated the freely disposable income for the considered case types in the 2'706 Swiss municipalities. Besides the individual cases the development of the freely disposable income as a function of earned income offers valuable insights. Figure 7 displays this development of the freely disposable income for Riehen (Basel-Stadt) in compari- Swiss Issues Regions 9 Economic Research son to three other municipalities. It takes account of the costs of commuting to Basel from all four locations, assuming the use of a midsize family car for the daily journey. Annual commuting costs, which are independent of income, add up to an amount between CHF 1'958 (Riehen) and CHF 5'619 (Hofstetten-Flüh). Due to tax progression, the shape of the curve representing the freely disposable income flattens as earned income rises. The intersection of the curves indicates the income level at which one municipality becomes financially more attractive than another. Figure 7 Freely Disposable Income in Riehen (BS), 2011 In comparison with adjacent localities. Family with 2 children, mid-range single-family house, assets of CHF 300'000 Costs of commuting to Basel by a midsize family car 300'000 Freely disposable income 250'000 200'000 150'000 100'000 Riehen (BS) Hofstetten-Flüh (SO) Oberwil (BL) Kaiseraugst (AG) 50'000 0 100'000 150'000 200'000 250'000 300'000 Earned income 350'000 400'000 450'000 Source: Credit Suisse Economic Research As figure 7 shows, a family who lives in the municipality of Kaiseraugst in the canton of Aargau has the highest freely disposable income. For the selected household type, Hofstetten-Flüh is the second most attractive place to live – up to an earned income of CHF 360'000. From there on, due to higher taxes Hofstetten-Flüh is overtaken by Riehen. With an earned income of CHF 205'000 and more, residents in Oberwil have the lowest freely disposable income. 1.5 Indicators of Disposable Income Due to the large number of individual cases it is rather difficult to obtain an overview of the differences in the freely disposable income. We have thus calculated indicators that allow general conclusions on the financial attractiveness of the various territorial units. From the shape of the curve illustrating the freely disposable income in figure 7 two fundamental statements emerge:   RDI (Regional Disposable Income) indicator: The area under the curve represents the aggregate freely disposable income of all households in a specific territorial unit. For the range of earned incomes considered we use the central 80% interval of the Swiss income distribution. This implies that the bulk of households in a location are taken into account, such that the statement is valid for the broad middle class. Marginal income: The slope of the curve on the same interval of the income distribution indicates how much of an additional franc earned is freely disposable for consumption. In the hypothetical case of zero taxes and zero charges, marginal income would be 100%. The calculation of the freely disposable income for the above described case types has been conducted on the level of individual municipalities. The cantonal values represent the aggregate values of the municipalities, weighted by the number of population. The figures for the various combinations of types of residence and household were weighted with their relative share on the Swiss Issues Regions 10 Economic Research total of Swiss households. Since commuting distances and costs within a canton vary widely from one municipality to another, commuting costs are not included in our regional aggregation. Swiss Issues Regions 11 Economic Research 2 Results Unlike traditional comparisons of the attractiveness of residential locations, the analysis of regional differences in the freely disposable income takes account of new aspects. A simple comparison of tax burdens ignores the fact that high real estate prices in low-tax regions cancel a large part of tax savings. Furthermore, regional differences relating to other types of expenditure, such as for the health insurance premiums, for example – by far have larger effects than generally supposed. Given that a large part of the labor force commutes to the Swiss labor market centers, the cost benefits of living in agglomerations close to the centers are accentuated. 2.1 Disposable Income in the Swiss Cantons The RDI indicator for the cantons varies between a maximum value of slightly higher than 2 and a minimum of -4. It represents a synthetic indicator which for Switzerland is equal to the average value of 0. Positive values therefore indicate a freely disposable income higher than the Swiss average, negative values stand for income levels below the average. Figure 8 Freely Disposable Income in the Swiss Cantons (RDI Indicator), 2011 Without commuting costs; synthetic indicator, CH = 0 3 UR 2 1 GL AI OW TG AR SH SG NW GR SZ SO LU AG JU VS FR TI ZG BE 0 NE -1 ZH BL VD BS -2 -3 -4 GE Source: Credit Suisse Economic Research The least expensive place to live is Uri Figure 8 shows the values of the RDI indicator for all Swiss cantons. The canton of Uri has the highest value, displacing Appenzell Innerrhoden from the top position that it held in the 2006 and 2008 rankings. Households in Uri benefit from low taxes and moderate health insurance premiums. Though housing costs in the canton of Uri may not be the lowest in Switzerland, they are significantly below the national average. Slightly behind, the canton of Glarus is in second place in terms of the financial attractiveness for households of the broad middle class, followed by Appenzell Innerrhoden, Obwalden, Thurgau, Appenzell Ausserrhoden and Schaffhausen, all of them with values significantly above the average. They are at the top of a broad class of cantons above the average attractiveness, benefitting from different advantages. Living in the centers is expensive High housing costs particularly affect the budgets of middle class households in the centers. Households in the canton of Geneva are left with the lowest freely disposable income by far. The cantons of Basel-Stadt, Vaud and Zurich are also below the average. Thanks to agglomerations and rural areas, the latter two are closer to the national average than the purely urban canton of Geneva. However, Basel-Land and Neuchâtel, which constitute less urban cantons, are also below the average. Zug, which – according to the locational quality indicator of Credit Swiss Issues Regions 12 Economic Research Suisse – is the most attractive canton since years and benefits from high international immigration.1 In terms of the RDI indicator however, Zug is barely above the average. Attractiveness must be broad-based to achieve top rankings As the examples of Zug and Jura show, low taxes or low housing costs do not suffice for a canton to be financially attractive. Figure 9 illustrates the motives behind the cantonal RDI values and displays the changes vis-à-vis the positions in 2008. On the horizontal axis, the mandatory charges that are imposed on households of the middle class, are depicted as standardized sum. The sum of the fixed costs of a location is displayed on the vertical axis. Though the households in Zug pay the lowest mandatory charges by far, high fixed costs significantly affect their budgets. This is the reason for the average position of this Central Switzerland's canton in the RDI ranking. Canton of Jura: low housing costs, high taxes On the other side, we find the canton of Jura, with the lowest fixed costs by far. Low rents and real estate prices at first glance may predict a high value of financial residential attractiveness. However, as soon as mandatory charges are taken into account, in particular the tax burden, the picture modifies substantially. In sum, in the cantonal ranking of the financial attractiveness, Jura is in position 15. Figure 9 Change in Expenditure Components in the Cantons, 2008–2011 Mandatory charges: income and wealth taxes, social insurance contributions, compulsory health insurance Fixed costs: housing costs, ancillary costs, charges for water, sewage and waste disposal; standardized values, CH = 0 Fixed costs Tax advantages make up for high fixed costs Double disadvantages GE Positioning 2008 Positioning 2011 ZG ZH SZ BS CH-average NW GR LU OW AI UR GL SG TG VD BL Mandatory charges TI AG SO VS FR BE NE AR SH JU Combined advantages Asymmetric positioning Source: Credit Suisse Economic Research Uri on Top Since the last calculation of the freely disposable income in 2008 there have been several changes in the rankings. They are illustrated in figure 10, and are highlighted by figure 9. The most distinctive change relates to the canton of Uri, which has moved from 11th place in 2008 to the top position in this year's ranking. The reason for this rise lies in the amendment of the tax law by 2009, which was based on the change to a flat-rate tax model that created considerable tax reductions for the broad middle class. Other cantons having risen by at least three positions are St. Gallen and Lucerne, which have also reduced their mandatory charges. Besides Uri, also the canton of Basel-Stadt denotes substantial reductions in its mandatory charges. However, to date it had no effect on its ranking. While there have not been any changes regarding the cantons at the bottom of the ranking, a few ones have become less attractive in relative terms (Figure 10). The most distinctive descents apply to the cantons of Schwyz, Solothurn and Jura, all of which have lost five positions. In all these cantons, the mandatory charges have risen in relative terms. This does not necessarily imply that health insurance premiums or tax burden have increased in this time period. Their decline may also be explained by the fact that other cantons – in terms of these factors – 1 See: Swiss Issues Regions: Der Wirtschaftsraum Zug – Struktur und Perspektiven, Credit Suisse Economic Research, March 2011 (available in German only). Swiss Issues Regions 13 Economic Research have become more financially attractive since 2008. The canton of Zug has lost one rank. Unlike in other cantons, this results mainly from the significant increase in fixed costs. Figure 10 Freely Disposable Income (RDI Indicator): Changes 2008–2011 No commuting costs; rankings of the 26 cantons. Negative differences indicate losses of ranks, positive differences indicate gains of ranks UR GL AI OW TG AR SH SG NW GR SZ SO LU AG JU VS FR TI ZG BE NE ZH BL VD BS GE Rank RDI indicator 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Rank RDI indicator 2008 11 3 1 2 4 5 8 13 9 12 6 7 17 14 10 15 16 19 18 20 21 22 23 24 25 26 Difference 2008-2011 10 1 -2 -2 -1 -1 1 5 0 2 -5 -5 4 0 -5 -1 -1 1 -1 0 0 0 0 0 0 0 Source: Credit Suisse Economic Research How much of an additional franc earned is left for consumption? Marginal income reflects the proportion of an additional franc earned that is available to the household for consumption. This value expresses the rise in disposable income if earned income increases. Under the assumption that additional effort generally yields higher earned income, the indicator provides information about the financial incentives to earn higher income. The higher the share of additional income being taxed, the lower is the financial incentive to exert additional effort, due to the lower financial benefit. Figure 11 Marginal Income in the Swiss Cantons, 2011 Freely disposable share of an additional franc of earned income (average); in % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% ZG SZ UR NWOW ZH GL GR AI AG LU AR BS SG SH TG CH BL TI VD SO VS FR BE GE JU NE Source: Credit Suisse Economic Research Marginal income is determined exclusively by the tax burden of a location. Unlike housing costs or health insurance premiums, for example, it is completely unaffected by markets. The value can therefore be regulated by politics. Accordingly, a region has the opportunity to design the fiscal system such that it provides attractive conditions for the target group of potential future residents. Due to tax incentives those regions where the marginal income is high are likely to attract people with rising earned income. In Zug residents get 19 centimes more of each additional franc than in Neuchâtel Figure 11 shows the marginal income for the Swiss cantons. For the analysis of marginal incomes the cantons are the appropriate territorial unit, since they exert the greatest influence on tax levels and progression. In the cantons of Zug, Schwyz and Uri, which head the rankings, over 70% of each additional franc earned is available for consumption. The mid-range cantons show values between 60 and 70%, while the marginal income in Neuchâtel, Jura and Geneva is well below the Swiss average of 63%. The fiscal systems of these cantons are characterized by both high tax rates and high progression. As a consequence, disposable income in these cantons rises more slowly with increasing earned income compared to the Swiss average. Resi- Swiss Issues Regions 14 Economic Research dents of Zug keep 74 centimes of each additional franc they earn, while in Neuchâtel they have to make do with 55 centimes. 2.2 Disposable Income in the Swiss Municipalities As the lowest administrative level of the Swiss state system, the municipalities are the appropriate unit for the analysis of disposable income: Most components of financial residential attractiveness are either affected by locally administered prices, or they represent goods in welldefined local markets. Given the wide competencies of the municipalities within the Swiss (financial) federalism, beside the federation and the cantons they constitute the final authority that takes decisions affecting the financial attractiveness of residential locations. Figure 12 Freely Disposable Income in the Swiss Municipalities (RDI Indicator), 2011 Synthetic indicator, CH = 0; including the costs of commuting to the nearest center -5.2 – -2.0 -2.0 – -1.0 -1.0 – -0.3 -0.3 – 0.0 0.0 – 0.3 0.3 – 0.6 0.6 – 1.0 1.0 – 1.5 1.5 – 2.0 2.0 – 3.0 Cantons 0 25 50 km Source: Credit Suisse Economic Research, Geostat The RDI values for the Swiss municipalities, including the costs of commuting to the nearest center, are shown in figure 12. In the major centers Zurich, Basel, Berne, Lausanne and Geneva, including the adjacent municipalities, disposable income is lowest. The metropolitan regions, usually characterized by higher real estate prices, tax burden and health insurance premiums, are mostly unable to compete in terms of financial attractiveness with smaller municipalities in conurbations and in peripheral areas. A considerable number of municipalities in agglomerations are attractive to people who commute to a center for work. They may increase their freely disposable income by carefully selecting their residential location – without having to put up with an excessively long journey to work. This effect is attenuated when commuting costs are taken into account, as the example of the canton of Vaud clearly shows – but is far from compensating the difference between centers and agglomerations. Swiss Issues Regions 15 Economic Research Living in the canton of Fribourg may pay off The significance of cantonal borders is impressively highlighted at various locations. In the Lake Zug area the municipalities in Schwyz have the most attractive RDI values, mainly because of the relatively low real estate prices. The situation in the Lake Geneva region is crystal-clear: Though commuting costs are taken into account, municipalities in the canton of Fribourg – which are close to the centers of Lausanne, Vevey and Montreux in terms of transportation links – are distinctly more attractive than the adjacent municipalities in the canton of Vaud. The same pattern can be observed for municipalities in Fribourg that are close to the city of Berne. Thanks to health insurance premiums and real estate prices which are lower on a regional comparison, the canton of Fribourg enjoys clear competitive advantages. Second homes depress the freely disposable income in tourist areas Apart from center regions, internationally well-known tourist areas such as the Upper Engadine, Davos, Grindelwald, Zermatt, Bagnes/Verbier and Gstaad-Saanen have RDI values that are distinctly below the average. The high demand for second homes and the subsequent price pressure have a significant impact on the household budgets of the resident population. As expected, the highest RDI values are found in the inner alpine municipalities of Central Switzerland and in municipalities in the remote valleys of Graubünden, which are not known as classic tourist destinations. Poor accessibility and harsh living conditions make them less attractive for living and keep real estate prices low. North-eastern Switzerland appears generally attractive: Thanks to low taxes and low health insurance premiums, real estate prices below the Swiss average and a high concentration of centers, the RDI values of the region are above the average. Hypothetical Example 2: Family Urner, living in Hergiswil, Canton of Nidwalden Family Urner lives in Hergiswil, canton of Nidwalden, in a single-family house fitted out to a medium standard that was bought with an 80% mortgage. Mr. and Ms. Urner have two children, savings of CHF 300'000, and joint earned income of CHF 150'000. The family allowance and investment income bring their gross household income to around CHF 155'200. After the deduction of all mandatory charges (tax, pension and social insurance contributions, compulsory health insurance premiums) their disposable income is CHF 112'400. Housing, ancillary and electricity costs plus the costs of commuting to work in Lucerne by car bring their freely disposable income to CHF 39'800. Moving to Altdorf, where the Urners are originally from, would increase their freely disposable income to CHF 69'700 despite the higher costs of commuting, a difference of CHF 30'000. On the other hand, their journey to work would take 35 minutes, as against 10 minutes from Hergiswil. Swiss Issues Regions 16 Economic Research 3 Selected Components of Financial Residential Attractiveness Regional differences in the financial residential attractiveness on one hand result from mandatory charges prescribed at the cantonal and the local level. On the other hand, well-defined local markets, such as the real estate market, also have a significant impact on household costs. Given a particular place of work, the choice of the place of residence also significantly affects the time and money spent on commuting. While financial residential attractiveness depends on the total of all costs incurred, there also appear interesting regional differences in the individual components. 3.1 Tax Burden Taxes on income and wealth are one of the largest items of household expenditure, accounting on average for 11.7% of gross income. The tax burden on natural persons is therefore one of the major factors underlying the financial residential attractiveness. Switzerland's federal structure gives individual cantons and municipalities relatively far-reaching tax-raising competencies. The legally-binding ordinance on the application of the Tax Harmonization Act, in force since 2001, has resulted in a standardized approach to the principles of taxation across all cantons, but tax rates and tax allowances are still being determined by the cantons. Furthermore, municipalities are empowered to determine the tax thresholds applying to their residents. Figure 13 Tax Burden on Natural Persons 2010 Synthetic index, CH = 100 45 – 65 65 – 75 Scha f fh aus en 75 – 85 Bas el 85 – 100 100 – 115 Fr auen fel d 115 – 125 Li esta l 125 – 135 St.Ga llen Aa ra u Delémo nt Zür ich Her is a u Cantons Ap penz ell Sol o th ur n Zug Gla ru s Lu zer n Neuchâ tel Schw yz Ber n Sar nen Stans Altd o rf Ch ur Fr ibo ur g La us a nne Bel linz o na Sio n Genève 0 25 50 km Source: Braingroup, Credit Suisse Economic Research, Geostat Swiss Issues Regions 17 Economic Research Local authorities thus enjoy substantial freedom of action in determining their residential attractiveness. Figure 13 displays the index of the relative tax burden on natural persons in Swiss municipalities. The indicator considers taxes on income and wealth at the federal, cantonal and municipal level for various categories of income and wealth. The lower the value, the lower the tax burden – and vice versa. The map highlights the fact that mainly the eastern part of the country – in particular Central Switzerland – is actively engaged in the tax competition for individual persons. In contrast, cantons in Western Switzerland as well as the Basel region and the cantons of Berne and Solothurn have tax burdens above the Swiss average. On average, residents in the canton of Neuchâtel pay the highest taxes in Switzerland. Western Switzerland untouched by tax competition 3.2 Housing Costs Besides taxes, housing costs are one of the largest expenditure items for most Swiss households. Spending on rent or mortgage interest accounted for an average of 11.9% of the average household budget in 2008. Thereby, housing costs constitute a major factor in particular for households with low or medium budgets, whereas spending by relatively high-income households is mostly dominated by the tax burden. Figure 14 Average Annual Rent for a Four-Room Apartment Fitted out to a Medium Standard No ancillary costs; in CHF, CH average: CHF 24'380; 1st quarter of 2011 14'600 – 16'500 Scha f fh aus en 16'500 – 18'500 18'500 – 20'500 Bas el Fr auen fel d 20'500 – 22'500 22'500 – 24'380 Li esta l 24'380 – 26'500 St.Ga llen Aa ra u Delémo nt Zür ich Her is a u 26'500 – 28'500 Ap penz ell 28'500 – 30'500 Sol o th ur n 30'500 – 32'500 32'500 – 37'000 Zug Gla ru s Lu zer n Neuchâ tel Schw yz Ber n Sar nen Stans Altd o rf Ch ur Fr ibo ur g La us a nne Bel linz o na Sio n Genève 0 25 50 km Source: Wüest & Partner, Credit Suisse Economic Research, Geostat High housing costs in the centers and tourist regions Due to differences in regional supply and demand structures, it is almost impossible to speak of a homogeneous national real estate market. Instead, there are several regionally distinct markets for rental and owner-occupied property. Prices thus differ widely from one residential region to another. Our calculations of disposable income consider prices for rental apartments as well as single-family houses and condominiums in various categories. Figure 14 depicts rental Swiss Issues Regions 18 Economic Research prices in the Swiss municipalities, excluding ancillary costs, for a four-room apartment fitted out to a medium standard. Regional disparities regarding the prices of owner-occupied properties are basically similar to those in rental prices. The highest rents are paid in the centers, the conurbations, and the tourist regions. Also in the low-tax cantons of Central Switzerland, rental costs are partly above the average. In many rural municipalities however, rental costs for comparable apartments are below the national average. The most and least expensive municipalities differ by a factor of about two and a half. The cantons of Jura and Neuchâtel are particularly cheap places to live. 3.3 Regional Differences in Commuting Costs and Tax Deductions Differences in municipality-specific commuting costs are largely due to the distance traveled from home to work and the transportation mode selected. Expenditure on travel by private car can be as much as four times the cost of using public transportation. But cantonal and regional factors can also have significant effects on commuting costs. Most public transportation commuting services are organized as regional travel systems, whose price structures vary – in some cases very widely. The use of private motor vehicles is subject to differences in cantonal fiscal policies in the form of tax deductions and road taxes. Figure15 Cost of Commuting by Public Transportation to the Nearest Large or Medium-Sized Center Annual travel pass costs in CHF, single case type Schaffhausen 3'001 - 3'300 Aarau 2'701 - 3'000 Basel Olten Wil (SG) Baden 2'401 - 2'700 Winterthur Zürich 2'101 - 2'400 St. Gallen 1'801 - 2'100 1'501 - 1'800 1'201 - 1'500 Biel/Bienne Zug Neuchâtel 901 - 1'200 Solothurn 601 - 900 378 - 600 Bern Chur Luzern Thun La Chaux-de-Fonds Fribourg Lausanne Vevey 0 Locarno Montreux Genève 25 50 km Bellinzona Lugano Sion Source: SBB, Credit Suisse Economic Research, Geostat Public-transportation travel passes from the A-Welle to the Z-Pass In Switzerland, there are 19 regional travel systems. Swiss Federal Railways (SBB) is one of the members in 17 of them. The regional travel systems offer tickets and travel passes valid for a wide variety of periods, most of them entitling the holder to the free use of the transportation services available in the relevant zone. In most cases, the price structure is based on a system of zones – except the North-West Switzerland travel system (TNW), which covers the catchment area of the city of Basel at the low standard rate of CHF 700 per year. Combinations of various regional travel systems are also available. The well-known Z-Pass provides seamless links between the regions of Zurich, Zug-Schwyz, Aargau and North-Eastern Switzerland. Excluded from the benefits of a regional travel system are the canton of Valais, most parts of the cantons of Uri, Glarus and Graubünden (though there are local travel systems in Davos and the Upper Engadine, and travel passes for the Chur city network) and parts of the canton of Vaud. Swiss Issues Regions 19 Economic Research In these regions, SBB point-to-point travel passes are the cheapest option for commuters. Figure15 shows the annual commuting costs to the nearest large or medium-sized center for all Swiss municipalities. Tax deductions sugar commuting In Switzerland, the bulk of the costs of commuting to work can be deducted from taxable income. This "indirect subsidy" for commuting is politically contentious, as it creates incentives to live further away from one's place of work. In extreme cases, it leads to tax deductions of over CHF 30'000. Proponents argue that deductibility is justified since commuting is rarely a matter of choice. Most cantons allow the deduction of the actual costs of a 2nd-class public transportation travel pass. In cases where the use of a private motor vehicle is reasonable or appropriate, its operating costs can be claimed in accordance with the standard cantonal rate per kilometer. There is no standard national definition regarding the conditions applying to the use of a private motor vehicle, but they basically include cases such as illness or frailty on the part of the taxpayer, significant time savings vis-à-vis public transportation, and the remoteness of the nearest station or stop. The cantons of Uri, Nidwalden and Schaffhausen are exceptions. Schaffhausen allows commuters who use their own motor vehicles to deduct the cost of a firstclass – rather than a second-class – public transportation travel pass from their taxable income. In the canton of Nidwalden the whole distance traveled by private motor vehicle multiplied by the standard rate per kilometer is deductible without restriction. The most generous canton is Uri, where deductions from taxable income are allowed at the rate of CHF 0.70 per kilometer for the first 20'000 kilometers traveled, and at CHF 0.40 thereafter. This applies regardless of the transportation mode used, and indeed even to pedestrians. Graubünden heads the road tax ranking Road taxes also vary widely from one canton to another. Figure 16 shows a cantonal comparison of tax rates for a typical Swiss private car, assuming an engine size of 1'800 cm3, power equal to 161 bhp, and a weight of 1'400 kg. The alpine cantons of Graubünden and Valais are respectively the most and least expensive for this type of car, where Graubünden charges roughly two-and-a-half times as much as Valais. The cantons also vary in the role played by the vehicle parameters – weight, cubic capacity, power – in the calculation of road taxes. The cantons of Neuchâtel and Schwyz employ a combination of the first two in their calculations, while Ticino and Vaud use the second and third. More and more cantons are introducing lower tax rates for vehicles with lower emissions. Figure 16 Road Tax on a Cantonal Comparison 2011 Annual tax for a private motor vehicle in CHF, Legend: C = cubic capacity, W = weight, P = power C 500 W W W W&P P C 400 C W W&P C C C W C C W&C W&C C 300 C C C C W C C 200 100 0 GR BL BE JU TI GE FR BS AR VD SO GL LU CH SG ZH OW SZ NE AI NW ZG AG TG UR SH VS Source: Cantonal tax laws, Credit Suisse Economic Research Swiss Issues Regions 20 Economic Research 3.4 Health Insurance Premiums The rising proportion of the older age groups in the population as a whole, increasing average life expectancy, and the development of modern but expensive medical treatments have resulted in soaring healthcare costs in recent years. As a result, health insurance premiums have become significantly more prominent in the household budgets. Between 2000 and 2010, average monthly premiums for adults over 25 grew by an annual average of 5.2%, while the average annual rise in the national consumer price index was only 0.9%. Regional differences in premiums based on cost Insurers in Switzerland are allowed to adjust their premiums on a cantonal and regional basis to their costs. In 2001, the federal government was instructed to unify the intracantonal premium regions, which were previously determined individually by the insurers. Cantons where insurers are faced with variable cost distribution were divided into two or three areas in which different premiums were allowed to be charged for the same insured benefits (Figure 17). The price variance between the most and least expensive areas within a given canton is thereby restricted. In 1993, in an effort to confine competition for clients with below-average healthcare costs, a federal resolution was passed introducing the balancing of risk among the insurers. Health insurers with an above-average proportion of young clients, men in particular, are required to make balancing payments to insurers with higher-cost members. Regional differences in health insurance premiums therefore no longer depend on the age and gender structure of the insurers' client base. Regardless of disease patterns, they mainly reflect differences in the intensity of healthcare provision, which is partly determined by different doctor/patient ratios. From 2012 on, the risk-balancing process will therefore also take account of the number of days spent in hospitals and nursing homes by each health insurer's clients. Another reason for the regional premium differences arises from the health insurers' policies on building up reserves, by which the cantons are affected to varying extents. Centers, Western Switzerland and Ticino are most expensive Figure 17 shows median annual basic insurance premiums for persons aged over 25 in the 42 Swiss premium regions. Premiums tend to be higher than elsewhere in the urban regions, Western Switzerland and Ticino. They vary from approximately CHF 2'460 in the canton of Appenzell Innerrhoden to CHF 4'780 in the canton of Geneva, which corresponds to a factor of almost two. The 21 more expensive premium regions account for two thirds of this difference. The largest intracantonal discrepancy equals some CHF 900 per year between premium region 1 and premium region 3 in the canton of Berne. The overall picture is similar with regard to premium distributions for children (under 18) and young adults (between 18 and 25). Hypothetical Example 3: Mr. and Mrs. Rossi, living in Lugano, Canton of Ticino Recently married, Mr. and Mrs. Rossi live in a single-family house in Lugano, canton of Ticino, fitted out to a high standard and bought with an 80% mortgage. They both work in Lugano, and they have joint earned income of CHF 250'000 and assets of CHF 600'000. Their gross income amounts to CHF 254'800. After the deduction of all mandatory charges, their disposable income is CHF 153'800. Housing, ancillary and electricity costs bring the couple's freely disposable income in Lugano to CHF 67'300. Moving to a similar property in nearby Caslano, also in Ticino, would increase their freely disposable income to CHF 75'800. The costs of commuting using two separate cars are considered in these figures, but the distance of 10 km would take each of them 12 minutes a day to complete. Swiss Issues Regions 21 Economic Research Figure 17 Health Insurance Premiums for Compulsory Basic Cover in the Swiss Premium Regions, 2011 Annual median premium available from the health insurers authorized in 2011 in CHF; adults; deductible = CHF 1'000; BASE insurance model, no accident cover; Swiss median: CHF 3'272 2'400 – 2'700 2'700 – 3'000 SH 1 SH 2 BS 3'000 – 3'272 TG SO 3'272 – 3'600 BL 1 3'600 – 3'900 BL 2 BL 2 3'900 – 4'200 JU 4'200 – 4'500 ZH 3 AG ZH 3 LU 3 LU 2 SZ LU 1 NE BE 1 FR 2 FR 1 SG 3 ZH 2 AR AI ZG BE 1 VD 2 SG 2 SG 2 ZH 1 SO 4'500 – 4'800 ZH 2 SG 2 GL NW OW BE 2 GR 1 OW GR 2 UR VD 2 GR 3 FR 2 BE 3 VD 1 TI 2 VD 2 GR 1 VS 2 GE TI 1 VS 1 0 25 50 km Source: Swiss Federal Office of Public Health, Credit Suisse Economic Research, Geostat 3.5 Significant regional differences in premium reductions granted Premium Reductions for Compulsory Health Insurance To assist persons of modest means, the cantons grant reductions on health insurance premiums with financial support from the federal government. These depend mainly on income, wealth and the type of household and – like the premiums themselves – vary widely. Distinctions are also drawn between children, young adults and adults. Figure 18 shows net premiums after reduction for a single adult with annual gross income of CHF 40'000 and no assets. In half of the premium regions a person with this income receives no reduction, while a 37% reduction applies in the canton of Obwalden. It is worth noting that in the considered example, the interregional premium variance increases when reductions apply. There has been a particularly sharp rise in the difference between the extreme values. In premium region 1 of the canton of Vaud the net premium is CHF 4'380, which corresponds two-and-a-half times the costs in the canton of Obwalden. Swiss Issues Regions 22 Economic Research Figure 18 Premium Costs for Single Adults Gross income: CHF 40'000, no assets; annual median premium available from the health insurers authorized in 2011; deductible = CHF 1'000; BASE insurance model, no accident cover; in CHF 5'000 4'500 Net premium Premium reduction 4'000 3'500 3'000 2'500 2'000 1'500 1'000 500 OW ZG GR 1 GR 3 GR 2 FR 2 AI GL ZH 3 BE 3 NW FR 1 ZH 2 AR BE 2 UR LU 3 VS 2 SG 3 SO SZ LU 2 SG 2 ZH 1 BE 1 AG SH 2 TG LU 1 VS 1 SG 1 SH 1 BL 2 JU BL 1 NE TI 2 BS TI 1 VD 2 GE VD 1 0 Source: Cantonal agencies responsible for premium reductions, Credit Suisse Economic Research Figure 19 shows that the regional differences in premiums are also larger for other types of households when reductions are taken into account. The highest premium for a family of four is more than four times the lowest. Most of the reductions apply to premiums that are already relatively low. Figure 19 allows to draw conclusions about cantonal policies on premium reductions. The cantons of Basel-Landschaft, Ticino and Vaud draw no distinction when granting reductions based on which of the two premium regions a person lives in. A household in Laufen (premium region BL 2), for example, benefits from the same reduction as one in Liestal (premium region BL 1), even though the annual gross premium in Laufen is about CHF 700 lower. In the canton of Graubünden, in contrast, support contributions vary on a regional basis, such that net premiums in all three premium regions are about equal while gross premiums differ. The policies of the remaining cantons come somewhere between these two extremes. However, regional premium reductions differ widely as a function of assets as well as income. In the canton of St. Gallen, single adults with taxable assets of CHF 100'000 receive no premium reductions, independent of their income situation. In the canton of Nidwalden, however, households with no net income receive support up to taxable assets of about CHF 1.2 million. Hypothetical example 4: Mr. and Mrs. Zürcher, living in Richterswil, Canton of Zurich Mr. and Mrs. Zürcher are retired. They live in a 150-square-meter rental apartment in Richterswil, canton of Zurich. They receive pensions and AHV benefits of CHF 80'000 in respect of their former gainful employment. Their assets amount to CHF 300'000. The gross income of Mr. and Ms. Zürcher is equal to CHF 87'500. After the deduction of income and wealth taxes and compulsory health insurance premiums, their disposable income is CHF 72'100. Housing, ancillary and electricity costs bring their freely disposable income down to CHF 44'000. Moving from Richterswil to a similar property in a neighboring municipality in the canton of Schwyz – to Freienbach or Einsiedeln, for example – would increase the couple's freely disposable income to CHF 46'900 or CHF 48'600 respectively. This would be equivalent to increases of 6.5% and 10%, respectively. Swiss Issues Regions 23 Economic Research Figure 19 Premiums for Families with Two Children Gross income: CHF 85'000, no assets; annual median premium available from the health insurers authorized in 2011; deductible: adults = CHF 1'000 (no accident cover), children = CHF 300 (with accident cover); BASE insurance model; in CHF 12'000 11'000 Net premium Premium reduction 10'000 9'000 8'000 7'000 6'000 5'000 4'000 3'000 2'000 1'000 ZG OW GR 1 GR 3 GR 2 AI NW AR UR BL 2 AG GL LU 3 BL 1 LU 2 SZ SH 2 SO SH 1 TG ZH 3 LU 1 SG 3 VS 2 SG 2 ZH 2 SG 1 FR 2 VS 1 TI 2 ZH 1 VD 2 BE 3 TI 1 FR 1 NE BS GE JU BE 2 VD 1 BE 1 0 Source: Cantonal agencies responsible for premium reductions, Credit Suisse Economic Research Premium reductions increase inequality in premiums As already indicated, figure 19 shows that households in regions where premiums are already low tend to receive more support than those in cantons that are more expensive in this respect. This fact is not restricted to these two examples: Rather it applies across virtually the entire relevant spectrum of income and asset distribution. This means that on average, less financially strong households in high-cost premium regions bear a high proportion of the health insurance premiums than similar households in parts of Switzerland where healthcare costs are lower. Cantonal premium-reduction systems, however, take account of other factors besides the costs caused by the population. Income and asset distribution in the cantons is also an important factor in setting the income and asset thresholds below which reductions are granted. Payment levels are also affected by the state of the canton's finances. Finally, the cantons can also utilize reductions as a means of making transfer payments from financially stronger to financially weaker households. RDI Fact Sheets for the Swiss Municipalities Since it would not be practicable to present the results for the around 2'700 Swiss municipalities in this study, we have prepared fact sheets for all municipalities with more than 500 inhabitants, which compare their financial attractiveness as residential locations with major adjacent municipalities, and provide further information on commuting costs. The fact sheet for the municipality of Dietikon (ZH) is shown on pages 26 and 27. We kindly provide you with the fact sheet of your residential location or any reference municipality. The order form can be found at the following link: www.credit-suisse.com/research  Swiss Economy  Regions Swiss Issues Regions 24 Economic Research Appendix Overview of Income and Expenditure Factors Utilized Abbreviation, regional delimitation, data sources Regional delimitation CH Year Source Cant. Mun. () Transfer income Premium reductions PR () Family allowances FA  2011 Responsible cantonal agencies 2011 Federal Social Insurance Office (BSV) Mandatory charges Income-tax rates  Wealth-tax rates  2010 Braingroup  2010/ Credit Suisse Economic Research, 2011 cantonal tax offices Imputed rental value for owner-occupiers  2010 Braingroup Federal Old Age and Survivors' Insurance AHV (AHV)  2011 Federal Social Insurance Office (BSV) Federal Disability Insurance IV  2011 Federal Social Insurance Office (BSV) Income Replacement Scheme (EO) EO  2011 Federal Social Insurance Office (BSV) Unemployment Insurance UI  2011 Federal Social Insurance Office (BSV) NOA  2008 Federal Social Insurance Office (BSV)  2011 Federal Social Insurance Office (BSV) Non-occupational accident insurance Occupational pensions Compulsory health insurance premiums (by premium region) () () 2011 Federal Office of Public Health (FOPH) Transaction prices for residential real estate  2010 Wüest & Partner Apartment rental prices  2011 Wüest & Partner Electricity prices  2010 Federal Electricity Commission  2011 Price watchdog Fixed costs sewage, water and waste-disposal charges Ancillary and energy costs  2008 Swiss Federal Statistical Office (BFS) Commuting costs: public transportation travel passes  2011 SBB, Credit Suisse Economic Research Commuting costs: private car  2011 TCS, Credit Suisse Economic Research Tax deductions for commuting costs  2011 Cantonal tax laws, Credit Suisse Economic Research Source: Credit Suisse Economic Research Swiss Issues Regions 25 Economic Research Disposable Income in Swiss Municipalities DIETIKON (ZH) Map of Municipality Regional Overview Municipality Facts Canton ZH District Dietikon Population (2009) 20'655 Population growth (1999-2009) Mandatory charges low 1.2% Employed persons (2008) high Fixed costs Swiss average low 13'503 high The fixed costs comprise: living costs, ancillary expenses, charges for water, sewers and waste collection, cost of commuting to nearest center. The mandatory charges comprise: Income and wealth taxes, social security contributions, mandatory health insurance. Both are standardized figures taking the Swiss average as their zero point. Information about Commuting Commute to Transportation Commuter Time Integrated fare network / mode no. (2000) each way travel pass Married couple Family 1 commuter 2 commuters 1 commuter ZVV-AG 3 Zones 3'933 10'462 4'075 1'053 2'106 1'053 ZVV 3 Zones 4'994 12'810 5'182 1'035 2'070 1'035 in minutes Baden (AG) Private vehicle 104 16 Baden (AG) Public transp. 104 9 Zürich (ZH) Private vehicle 3'617 21 Zürich (ZH) Public transp. 3'617 12 Cost per year in CHF Single person Information on commuting relates to routes to the nearest relevant center. The starting point in each case is the center of the corresponding municipality. Travel costs associated with vehicles vary according to household type and are based on the following vehicle types: Single person = compact car, married couple = higher-price-bracket station wagon + compact car, family: medium-price-bracket station wagon. Disposable Income for Reference Households Single person Married couple (no children) Family (2 children) In employment 1 person 2 persons 1 person Retired Income 75'000 250'000 150'000 80'000 50'000 600'000 300'000 300'000 Rented apartment 60m 2 High-quality SFH Medium-quality SFH Rented apartment 100m 2 Assets Living situation Transp. mode CHF % CHF Baden (AG) Private vehicle 32'400 43% Baden (AG) Public transp. 35'300 47% Zürich (ZH) Private vehicle 31'400 Zürich (ZH) Public transp. 35'300 36'200 Commute to No commuting Retired couple % CHF % CHF % 59'900 24% 49'900 33% - - 68'300 27% 53'000 35% - - 42% 57'600 23% 48'800 33% - - 47% 68'300 27% 53'000 35% - - 48% 69'900 28% 53'200 35% 44'500 56% "Disposable income" relates to the amount that remains at a household's disposal based on income from employment, assets, occupational pensions and any transfer payments and after deduction of all mandatory charges (income and wealth taxes, social security contributions, pension contributions, health insurance premiums) and fixed costs (living costs, ancillary expenses, electricity costs). The inclusion of commuting results in transportation costs, part of which are tax-deductible. SFH = single-family house. % = relative share of gross income. Swiss Issues Regions 26 Economic Research DIETIKON (ZH) Comparison of Disposable Income 30 selected reference Cost of commuting to nearest center Commuting costs excluded municipalities in the region RDI Indicator Single* Couple* Family* Single* Couple* Family* Rtd Couple* Dietikon (ZH) -0.49 33'900 64'100 51'500 36'200 69'900 53'200 44'500 Bergdietikon (AG) -0.39 33'300 74'900 56'500 36'000 80'700 59'200 45'200 Weiningen (ZH) -0.30 34'500 67'800 53'300 37'500 75'200 56'500 46'300 Oetwil an der Limmat (ZH) -0.70 34'400 55'500 45'000 36'600 60'900 46'700 44'500 Spreitenbach (AG) 0.23 34'600 83'700 63'000 36'300 88'200 64'000 46'100 Rudolfstetten-Friedlisberg (AG) -0.10 33'400 75'600 57'500 36'600 82'500 60'700 46'300 Killwangen (AG) 0.07 34'900 76'200 58'100 36'300 80'000 58'800 46'000 Widen (AG) -0.13 34'500 70'200 53'800 37'100 76'500 55'800 47'000 Geroldswil (ZH) -0.41 35'500 59'400 47'400 37'600 64'800 49'700 46'300 Unterengstringen (ZH) -0.93 34'100 48'300 40'900 36'300 53'800 42'500 44'000 Hüttikon (ZH) 0.11 35'500 74'800 57'500 37'600 79'000 59'700 46'700 Schlieren (ZH) -0.41 34'500 63'800 51'200 36'700 69'200 53'500 45'300 Würenlos (AG) 0.00 34'500 78'500 58'700 36'000 82'500 60'300 45'500 Berikon (AG) 0.11 34'900 78'500 58'900 37'800 84'700 61'100 47'800 Birmensdorf (ZH) -0.78 33'500 55'600 45'600 35'900 61'400 48'100 43'800 Urdorf (ZH) -0.96 33'600 49'000 41'900 36'300 55'600 44'000 44'500 Neuenhof (AG) 0.20 34'100 86'500 63'600 35'100 88'500 64'600 44'700 Eggenwil (AG) 0.17 35'000 80'000 60'000 37'400 85'800 62'500 47'800 Dänikon (ZH) 0.25 34'900 82'100 62'200 37'000 87'400 64'400 45'600 Bellikon (AG) 0.04 34'500 80'600 60'700 36'600 85'900 62'200 46'200 Otelfingen (ZH) -0.04 35'600 72'900 56'200 37'500 77'600 58'200 46'400 Oberengstringen (ZH) -0.73 33'400 59'200 48'200 35'800 65'200 50'700 43'700 Bremgarten (AG) 0.26 34'400 85'200 63'800 37'100 91'700 66'600 47'300 Oberwil-Lieli (AG) -0.10 34'000 72'900 55'100 36'700 79'500 58'000 45'900 Zufikon (AG) 0.50 35'300 91'700 66'800 38'100 97'800 69'700 48'700 Regensdorf (ZH) -0.62 33'800 59'400 47'900 36'600 66'200 50'800 44'900 Aesch bei Birmensdorf (ZH) -1.53 33'300 30'600 29'700 35'900 37'000 31'800 43'200 Uitikon (ZH) -1.36 34'700 37'700 32'900 36'500 41'300 34'700 44'000 Künten (AG) 0.59 34'800 94'300 69'200 36'900 98'700 71'300 47'300 Baden (AG) 0.12 35'000 79'700 59'500 35'700 81'300 59'500 44'800 Zürich (ZH) -2.26 32'600 19'300 21'200 33'500 21'500 22'100 39'800 The RDI (Regional Disposable Income) indicator expresses the disposable income for a wide range of households. For Switzerland it is set at 0. Cost of commuting: average cost of public transport and private vehicle. * The definition of reference households corresponds to that on the first page. Bold = nearest relevant center of employment. Only municipalities with more than 500 inhabitants are taken into account. The number of municipalities corresponds to the number in 2008 (2'706). Information Contact Further Information Credit Suisse Economic Research "Living and Commuting: Where's the Least Expensive Place to Live? Disposable Income in Switzerland" Regional Analysis www.credit-suisse.com/research Swiss Economy Regions Publications Email: regionen.economicresearch@credit-suisse.com Sources Tel.: +41 44 334 74 19 Details of sources are contained in the above-mentioned study. Credit Suisse Group AG Credit Suisse AG is one of the world's leading financial services providers. As an integrated bank, Credit Suisse offers clients combined expertise in the areas of private banking, investment banking, and asset management. Disclaimer This document was prepared by Credit Suisse Economic Research, and does not constitute the results of any financial analysis by ourselves or others. As a result, the "Directives on the Independence of Financial Research" issued by the Swiss Bankers Association do not apply to this document. This publication is for information purposes only. The views expressed herein are those of Credit Suisse Economic Research at the time of going to print (we reserve the right to make amendments). This publication may be quoted providing the source is indicated. Copyright © 2011 Credit Suisse Group AG and/or its affiliated companies. Swiss Issues Regions 27