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Locational quality 2025 – outlook after the tax reform: Zug defends top spot, Basel-Stadt overtakes Zurich, Geneva now in 4th place

Credit Suisse publishes its annual study on the locational quality of Swiss cantons and regions

The long-term economic potential of the Swiss cantons is largely determined by the overall conditions for business. The cantons of Zug, Zurich, and Aargau retain their leading positions in this year's Credit Suisse Locational Quality Indicator. Over the next few years, however, the fundamental restructuring of corporate taxation is likely to bring some movement in the rankings: The outlook to locational quality in 2025 sees Zug still in the top spot, with Basel-Stadt overtaking Zurich and Geneva moving up into fourth place.

Intense competition between different locations is forcing the Swiss cantons and regions to take steps to optimize their appeal. The annual Locational Quality Indicator (LQI) compiled by Credit Suisse measures the attractiveness of Swiss cantons and regions to business. It looks at seven "hard" locational factors and provides businesses with a basis for evaluating locations. In addition, it can be used as a benchmarking tool for enhancing cantonal or regional location policy.

Zug and Zurich top the rankings again in 2018
The Canton of Zug has been the undisputed leader of the cantonal rankings for years, followed by Zurich (see Fig. 1). Ranking in third place since 2016 is the Canton of Aargau, which at that time overtook Basel-Stadt, among others, thanks in particular to its greater tax appeal to business. These locations offer the most attractive combination of factors. The cantons of Nidwalden, Schwyz, and Lucerne likewise boast results that are well above average. A series of suburban cantons, plus the city canton of Geneva, make up the broad midfield. Overall, there are only minor changes versus last year: The Canton of Ticino has overtaken Fribourg, while Neuchâtel has passed Bern and Thurgau has moved ahead of Obwalden. With their challenging topography, the peripheral cantons of Jura and Valais have the lowest locational quality.

Regional view: Significant differences within the cantons
For the larger, heterogeneous cantons – such as Bern, Vaud, Ticino, and Graubünden – an analysis merely at cantonal level is too superficial. Thus the Credit Suisse economists also examine locational quality at the level of Switzerland's 110 economic regions (see Fig. 2). The highest degree of attractiveness for businesses is exhibited by the centers Zurich, Zug, Baden, Lucerne, Basel, and Bern, as well as their agglomerations, thanks mainly to their accessibility. In French-speaking Switzerland, Nyon is positioned well above the neighboring regions, and in Ticino the same is true for Lugano and in particular Mendrisio. Alpine regions and the regions of the Jura arc are clearly less attractive to companies due to their topographical features and, in some cases, the length of travel time into the urban centers. 

Locational quality 2025: Provisional ranking following tax reform and NEAT completion
Two components of locational quality are set to change significantly in the years ahead. First, a fundamental reform of corporate taxation is planned under the Federal Act on Tax Reform and AHV Financing (TRAF). Second, the opening of the Ceneri Base Tunnel in 2020 will boost the Canton of Ticino's accessibility.

Since most cantons have announced their tax strategies under the TRAF, the Credit Suisse economists have produced initial forecasts for locational quality in 2025. Based on the changes proposed by the cantonal governments in relation to corporate taxation (see Fig. 3), which would in many cases be implemented on a phased basis by around 2025, they recalculated the locational quality partial indicator "tax burden on legal entities." With the exception of the Canton of Vaud, where the reform of corporate taxes was decided in a referendum in 2016, the cantonal tax strategies have still to be approved by citizens in most cases. The newly calculated cantonal ranking is designed – based on current knowledge – to provide an insight into the direction in which locational quality might develop. In addition to corporate taxation, the changes in accessibility indicators as a result of the completion of the new transalpine railway route are taken into account. The other locational factors – the tax burden on private individuals and the availability of specialist labor and highly-qualified personnel – are unchanged.

In this hypothetical LQI for 2025, the Canton of Zug still comes out top (see Fig. 4). With the planned reduction in the corporate profit tax rate to 13.04%, Basel-Stadt makes the biggest progress based on current information: It pushes the Canton of Zurich (planned corporate profit tax rate of 18.19%), which has occupied second place ever since the start of our study, into a distant third. Geneva (planned corporate profit tax rate of 13.79%) also sees a clear improvement, jumping a whole nine places. Basel-Land and Solothurn both advance by six places, because they too want to make significant reductions to their corporate profit tax rates (to 13.45% and 13% respectively) as well as to taxes on capital. The Canton of Aargau, which occupies third place in 2018, would likely fall to sixth spot in the event of the planned reduction in the corporate profit tax rate to 17.9% and in the capital tax rate to 0.75 per mill.

The planned reductions in corporate taxes generally increase locational quality. Due to the relative analysis of locational quality, cantons can nevertheless lose ground in the locational quality indicator despite tax breaks. Today's frontrunners in terms of corporate taxes will lose at least part of their relative advantage because the differences on the whole will become smaller and some cantons will wish to position themselves even more attractively on the tax front in future. At an international level as well, tax competition is increasingly taking place via lower standard tax rates. Switzerland is well placed in these global locational rankings: Besides low corporate tax rates, Swiss locations offer a high degree of political stability, high-quality infrastructure and educational institutions, peaceful industrial relations, and sound public finances.

The Credit Suisse Locational Quality Indicator
Credit Suisse has provided quantitative analysis of the locational quality of Swiss cantons and regions since 1997. Our Locational Quality Indicator (LQI) was developed in order to measure the attractiveness of the Swiss regions and cantons from a business perspective. It measures the attractiveness of an area by means of a relative index based on the following seven quantitative partial indicators: tax burden on legal entities and private individuals, availability of specialist labor and highly qualified personnel, population accessibility, employee accessibility, and access to airports.

The publication "Locational Quality 2025: Outlook After the Tax Reform" is available online in German, French, Italian, and English at: 
(Markets & Trends – Swiss Economy)