by Malcolm Curtis|American International Club of Geneva E-News, Vol. 4 2012
David Hiler, Geneva’s cantonal finance minister, is encouraging members of the American International Club to lobby for tax legislation that attracts companies to the canton.
“We need you,” Hiler, speaking in French, told 50 people attending an AIC luncheon at the Hotel Intercontinental on June 22.
The Green party member, who has held the finance portfolio since 2005, said members could help “fight against the confusion” about Geneva’s tax policies, which have come under fire from left-wing politicians.
The Socialist party in March launched an initiative to scrap tax breaks (known in French as “allègements fiscaux”) that provide an incentive for new companies to establish operations in the canton.
The initiative is critical of what it calls “gifts to multinationals”, but Hiler, 57, maintains that it would be “stupid” to give up what he regards as a useful economic development tool.
In his informal presentation to the AIC, he underlined the importance of multinational companies that account for 43 percent of Geneva’s gross domestic product and employ
around 40,000 workers.
Under Swiss federal legislation, the cantons are able to provide tax discounts over a
10-year period for new companies, provided they do not compete directly with existing businesses.
In cases where firms leave before the period expires they are liable to pay the full tax rate retroactively.
Such deals are available to all companies and are not geared as special “packages” for multinationals, Hiler indicated.
The “anti-capitalist” arguments used by the Socialists are dangerous, he said, noting that since the early 1990s the canton’s finances have depended on revenues from multinationals as “pillars” of support.
Among other challenges highlighted by Hiler is the scheduled expiry in 2015 of federal tax legislation that is subject to negotiations with the European Union, whose member
countries are pressuring for changes.
This poses a “major threat,” Hiler acknowledged, with the EU not prepared to accept differences in tax rates between the cantons, as is now the case.
Geneva is involved with all the other cantons, he said, in preparing a common strategy alongside the federal government to develop a minimum tax rate for corporations.
He believes that Bern is on the right track in its talks with Brussels but added candidly that “there is no solution that costs nothing.”
To retain multinational corporations that currently benefit from a status as “mixed companies” (those earning income both in Switzerland and abroad), we need to drop
the effective rate of tax on profits to a rate of between 13 and 16 percent, Hiler said.
However, ordinary companies, he said, currently pay 29 percent if you take into account tax on capital and municipal professional taxes.
For the moment, Hiler said Geneva was experiencing a “paradoxical period . . . while confronting a number of extremely difficult risks.”
Switzerland as a whole had escaped the financial crisis of 2008 virtually without damage, while the canton is chalking up economic growth and the unemployment rate is low, he said.
But the strong Swiss franc is posing a danger that some companies will move out of Geneva, Hiler acknowledged.
“How long will American CEOs accept paying their managers more in Geneva than those in the US?”
The politician offered one solution for multinationals to cut costs by moving “back office” and “service” operations across the border into neighboring France.
“If it means (companies are going to) stay in the region we would be very happy.”
The strength of the franc against the euro was already causing a “colonization” in the French region, Hiler said, alluding to the growing number of Geneva workers who now live there.
Meanwhile, with Switzerland’s legendary banking secrecy laws now in question, Geneva’s financial sector is also facing headwinds, with strong competition emerging from Asia, he said.
While the city’s financial firms continue to have strengths, Hiler expected they will see a reduction in business.
As to Geneva’s finances, he said the canton is struggling to deal with a drop in revenues while juggling demands to pay for more policing in the wake of public concerns about security.
Hiler, who chatted with AIC members after the luncheon, was invited by club president Edward Karr to attend the club’s US Presidential Elections Night event at the Crowne Plaza in Geneva on November 6.
When asked which candidate he preferred, he tipped his hand by commenting that the Republican Party’s economic policies did not seem to be workable.