Increase in tax revenues is high despite Corona

Anyone who thought that the corona pandemic would have negative consequences for the Zug cantonal treasury is mistaken. Despite the extension of the payment period for taxes, the values remain in the green range – and in some cases are even higher than in previous years.

The discipline of Zug workers in submitting their tax returns is high, despite the corona pandemic. "We have already received around 60% of the tax returns sent to natural persons. This is roughly the same as the previous year's figure on the same date," says Heinz Tännler, Zug's finance director. No backlog in the processing is therefore to be expected, despite the general extension of the deadline for filing the tax return to the end of June. The situation is similar for legal entities. They must submit their tax records by the end of September. "Here, too, the current return is roughly in line with the previous year's figures," says Tännler.

While the receipt of the tax documents is running virtually as normal, the finance director is somewhat concerned about a pleasing fact. The canton of Zug is currently being flooded with money. "In the first quarter up to the end of March, we raised about CHF 500 million less than in previous years," explains the Finance Director. That was what they’d expected. Due to the extension of the deadlines, outstanding tax payments of just over CHF 425 million were expected. By the end of July this year, however, the canton had compensated for the lower liquidity inflow of CHF 500 million – and had even gone beyond it. The surplus of liquidity is enormous and pleasing. One reason for this is certain that the canton of Zug has a good mix in terms of local companies and that the Zug economy in general is defying the crisis.

Always looking for the best deal
This money supply poses challenges for the Zug Finance Directorate due to the prevailing negative interest rates. "Our goal is clear, we want to avoid negative interest rates as far as possible," says Heinz Tännler. Financial management is therefore of great importance, and Tännler and his employees work every day to find the best options for the deposits and, where necessary, to receive at least a low interest rate when the cantonal funds are deposited, and to certainly avoid having to pay for the deposit.

In order to avoid paying negative interest on balances, the canton of Zug has taken various measures. "We have been able to negotiate interest-free limits with several financial institutions. This means that no interest has to be paid up to a certain amount of credit in an account, but only as long as the balance does not exceed this limit," explained Finance Director Heinz Tännler earlier to our newspaper. "In addition, we check all our account balances several times a day in order to be able to intervene immediately if necessary." The limits granted are a matter for negotiation and are not “carved in stone”, however, and if these limits were to be reduced further, the canton would immediately come under pressure again.

In the prevailing negative interest rate environment, the Zug finance director has to work hard to manage the liquidity surplus at no cost to the canton.

Withholding taxes ‘parked’ with the Confederation
"As a further measure to avoid negative interest rates, we try to keep our liquidity, i.e. our cash holdings, as low as possible," says Tännler. For this reason, withholding tax assets are currently being left with the Confederation, as the Confederation does not charge negative interest. "Here, we are taking advantage of the legal leeway that there can be a total of five years for the collection of funds before the limitation period expires." Withholding tax assets of the canton of Zug of more than CHF 1 billion were held by the Confederation at the beginning of February.

Fat financial years are pleasing, but also create problems
Finance Director Tännler expects a record surplus of just over CHF 200 million or more for the current year. And large surpluses are also to be expected for the coming years (with an exception for 2022: according to the financial plan, a zero balance is expected here). In addition to this liquidity surplus, there is another problem. From the summer of 2021, due to the limitation period, the first withholding tax credits will have to be reclaimed, and. liquidity will then continue to increase massively. "These circumstances force the canton to plan measures on a rolling basis, and to think well ahead," Tännler explained in our newspaper in February this year. That has not changed. As well as the fact that "in this context, it is ultimately necessary to consider whether cash should be deposited in some appropriate location."