2009 Index of Economic Freedom

Quick Facts

Population:

• 7.5 million

GDP (PPP):

• $278.6 billion
• 3.2% growth
• 1.7% 5-year compound annual growth
• $37194 per capita

Unemployment:

• 2.5%

Inflation (CPI):

• 0.9%

FDI Inflow:

• $25.1 billion

Switzerland's economic freedom score is 79.4, making its economy the 9th freest in the 2009 Index. Its score is basically unchanged from last year. Switzerland is ranked 3rd out of 43 countries in the Europe region, and its overall score is much higher than the world average.

Switzerland's openness to global commerce has allowed its small economy to be one the most competitive and flexible in the world. With an efficient business environment and well-maintained macroeconomic stability, Switzerland has long benefited from vibrant entrepreneurial activity.

The average tariff rate is low, and commercial operations are protected under the regulatory environment and aided by a flexible labor market. Inflation is extremely low. Foreign investment is welcome, and screening applies to only a few sectors. Both foreign and domestic investors have access to adequate sources of credit. The national financial sector leads the world and is both protective of privacy and open to foreign institutions. The judiciary, independent of politics, enforces contracts reliably. Corruption is virtually nonexistent.

Background Back to the top

Switzerland, one of the world's richest and most investment-friendly destinations, is a member of the World Trade Organization, the International Monetary Fund, the World Bank, and the Organisation for Economic Co-operation and Development. A multicultural society with four official languages, Switzerland has a long tradition of openness to the world yet jealously guards its independence and neutrality. The seat of the ill-fated League of Nations, Switzerland joined the United Nations only in 2002. Two referenda on membership in the European Union have failed by wide margins, and membership in the European Economic Area was rejected by referendum in 1992. Swiss–EU relations are based instead on an extensive range of bilateral agreements that are considered quite successful. Switzerland is an international banking center, but its economy also relies heavily on precision manufacturing, metals, pharmaceuticals, chemicals, and electronics.

Business Freedom 82.9 Back to the top

The overall freedom to conduct a business is well protected under Switzerland's regulatory environment. Starting a business takes 20 days, compared to the world average of 38 days. Obtaining a business license takes less than the world average of 18 procedures and 225 days. Bankruptcy proceedings are relatively easy.

Trade Freedom 85.4 Back to the top

Switzerland's weighted average tariff rate was 2.3 percent in 2005. Prohibitive agriculture tariffs and quotas, restrictive biotechnology regulations, import taxes, export subsidies, and some services market access barriers add to the cost of trade. Ten points were deducted from Switzerland's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 67.5 Back to the top

Taxation is more burdensome at the cantonal levels than it is at the federal level. The top federal income tax rate is 11.5 percent, but the combined top income tax rate (federal and sub-federal) can be as high as 41.5 percent, and the top corporate tax rate can be as high as 25 percent. Other taxes include a value-added tax (VAT) and cantonal-level property taxes. In the most recent year, overall tax revenue as a percentage of GDP was 30.1 percent.

Government Size 65.3 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 34.0 percent of GDP. Direct government participation in the economy has been confined to such public services as post offices, railways, and defense.

Monetary Freedom83.9 Back to the top

Inflation is very low, averaging 0.9 percent between 2005 and 2007. Government measures influence the prices of agricultural goods and pharmaceutical products, and the government influences prices through regulation, subsidies, and state-owned utilities. Ten points were deducted from Switzerland's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom70.0 Back to the top

Foreign investment receives national treatment, and many sectors are open to private investment. Project screening applies in only a few sectors. Joint stock companies must have a majority of resident Swiss nationals on their boards. Foreign investments are subject to review by the Competition Commission if the value of the investing firm's sales reaches certain levels. The investment code and its implementation are generally transparent and efficient. Residents and non-residents may hold foreign exchange accounts. There are no restrictions on repatriation of profits, payments for invisible transactions, or current transfers. Real estate purchases by non-residents must be approved by the canton in which the property is located.

Financial Freedom80.0 Back to the top

Switzerland is a leading financial center with highly developed and well-regulated institutions. Foreign and domestic investors have adequate access to capital. The private sector enjoys access to a wide variety of credit instruments. The federal government is not a shareholder in the central bank but has appointment authority and approves regulations. Banks offer a wide range of services, and credit is allocated on market terms. Banking secrecy has been loosened to prevent money laundering and tax evasion. Approximately 44 percent of all banks are foreign-controlled. Insurance is well developed, and the state-owned postal service offers a variety of financial services. Capital markets are strong, and the stock exchange is one of Europe's largest.

Property Rights90.0 Back to the top

The judiciary is independent, and contracts are secure. Switzerland has one of the world's best protection regimes for both foreign and domestic holders of intellectual property.

Freedom From Corruption90.0 Back to the top

Corruption is perceived as almost nonexistent. Switzerland ranks 7th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption is not pervasive in any area of the economy, and enforcement procedures against domestic corruption are effective. Giving or accepting a bribe is subject to criminal and civil penalties, including imprisonment.

Labor Freedom79.2 Back to the top

Switzerland's relatively flexible employment regulations enhance overall employment and productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee can be costly.