Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

A referendum lost. Voters crying foul at cuts to public services. The threat of financial chaos and businesses sent packing.

This isn't Brexit Britain. It's Switzerland.

The country this weekend voted down a government plan to keep offering tasty tax breaks to multinational companies -- while still abiding by tougher new international rules.

Much like the U.K.'s vote to quit the European Union or Italy's referendum on political reform, this is yet another example of a complex legislative proposal put to an increasingly polarized electorate. Opponents of the plan said it would deprive Swiss coffers of 2.7 billion francs ($2.7 billion) of tax revenue and squeeze public services. The government promised to refund some of those losses and warned that a no vote would send multinationals away.

The opponents won. Even the Swiss are fed up with cushy tax deals, it seems. The worry now is that this deals a blow to the image of Switzerland as a low-tax base for rich companies.

Not-So-Safe Haven
Total tax revenue as a percentage of GDP, 2015
Source: OECD

Firms may now put spending on hold, UBS Wealth Management's Swiss Chief Investment Officer Daniel Kalt told Bloomberg Television on Monday. Drugmaker Roche Holding AG and Caterpillar Inc. are among firms now urging Swiss politicians to come up with a new proposal.

The worry is especially potent at a time when other countries are lining up to attract those firms in a post-Brexit world.

The U.K. seems set on slashing taxes to offset the pain of cutting ties with the EU, its biggest trading partner. Switzerland no longer appears quite so unique: Sweden -- a country with a similar population size and some of the strongest banks in Europe -- has a tax structure that's almost as competitive as Switzerland, according to one 2016 ranking.

But CEOs shouldn't pack their bags just yet. The government has another two years to cobble together a plan that's a better sell to voters than the last one. And it's also not clear that there really is a tax competitiveness issue just yet: With or without the corporate tax overhaul, Switzerland's lower social security contributions and absence of payroll taxes relative to the OECD average should keep it competitive, according to CA Indosuez Wealth Management Chief Economist Marie Owens Thomsen.

Still Competitive
Corporate tax rates aren't the only area where Switzerland has an advantage over the rest
Source: CA Indosuez Wealth Management/OECD

Switzerland's economy also seems to be doing well despite other threats like the erosion of bank secrecy and the rise of the Swiss franc. A world of geopolitical risk is prompting capital to flow back into the country rather than the reverse. Capital outflows throughout 2016 have been very modest and could shift into inflows, according to HSBC strategists. And for all the angst over the exchange rate, Swiss companies have done remarkably well in convincing foreigners to buy their products, boosting their exports to the U.S. in the last 15 years.

More than Cuckoo Clocks
U.S. imports from Switzerland have soared since 2000, despite a rising Swiss franc
Source: CA Indosuez Wealth Management
Note: Index of imports of goods/services/income re-based at 100

Switzerland really is a safe haven, in other words. Could the U.K. or Sweden make the same claim? CEOs know what bilateral relations between Switzerland and the EU look like. Britain has no such luck. CEOs know that Switzerland has a long history of consensus-building and political stability -- Sweden, as recently as the 1980s, had a tendency to impose harmful levies such as a tax on financial transactions.

Sure, the Swiss model is exposed to threats. But the current tax spat is unlikely to be its death knell. CEOs know that safe-haven status is hard to achieve. Britain, or any other wannabe tax haven, shouldn't expect to have an easy fight on its hands.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net