Disposable income: Where to find affordable living in Switzerland

Affordable living? Places in Switzerland where you have the most disposable income. 

Affordable living in Switzerland? It is possible. A new study by Credit Suisse explains the five major factors that determine what makes a place attractive to live in, and it shows in which cantons and municipalities people have the highest disposable income.

RDI indicator reveals affordable places to live in Switzerland

For many people, choosing the "right" place to take up residence is one of their most important decisions in life. They consider a wide variety of criteria when making the decision. Besides the location, infrastructure, availability of suitable housing, emotional connections, and personal connections, financial factors also play a major role.

The Regional Disposable Income (RDI) indicator developed by Credit Suisse evaluates how affordable Swiss cantons and municipalities are using quantitative evidence. It is based on the estimated disposable income of 120,000 representative households per city and town. The study therefore offers an answer to this question: How much household income do people have left over for discretionary spending or saving in each city or town after subtracting their non-discretionary expenses and fixed costs? In a nutshell – where is the least expensive place to live?

Disposable income: calculation

Calculating disposable income 

Budget diagram of a representative household (married couple with two pre-school-age children who attend daycare twice a week)

Source: Credit Suisse

The five major factors that make a place to live affordable

Due to the Swiss system of fiscal federalism and as a result of local differences in market structures, there are disparities in non-discretionary expenses and fixed costs for each region. Below, we present five factors that have a considerable impact on the attractiveness of places to live in terms of affordability.

1. Tax burden: Relocating can reduce taxes significantly in some cases

Income and wealth taxes add up to nearly 12% of a person's average gross income, accounting for of the biggest portions of household spending. That is according to the Household Budget Survey of the Swiss Federal Statistical Office for the period 2015–2017. Because the country is organized according to the principle of federalism, there are significant regional differences in tax burden.

Credit Suisse's 2020 cantonal tax burden ranking reveals that Zug is the most attractive canton. It is followed by the cantons of Nidwalden and Uri. By contrast, Western Switzerland has tax rates that are well above average, except in Geneva. The tax burden often differs considerably within the cantons as well.

2. Cost of housing: Downtown areas and tourist regions are expensive

Besides taxes, housing costs represent a major expense for most Swiss households. They easily account for an average of one-tenth of their household budget, as revealed by the data in the Household Budget Survey for 2015–2017. However, The percentage may be significantly higher for households with lower income.

Expenses for an individual home depend on their type of residence. Thanks to low mortgage interest rates, for years now the monthly cost of owning a home has been lower than renting a comparable property. The region where a person lives has an even stronger impact on the cost of housing. Especially in city centers and metropolitan areas as well as regions with tax advantages and those popular with tourists, housing costs are higher than in other regions.

3. Commuting expenses: Tax deductions increase willingness to commute

The Swiss are a nation of commuters. Roughly 70% or the labor force works outside their city or town of residence, and just under 20% cross the border of at least one canton on their way to and from work. Commuting expenses depend mainly on the distance traveled to and from work and the chosen means of transportation. More than half of commuters take their cars to work, while roughly a third use public transportation.

Because the expenses for commuting to and from work are partially deductible from taxable income, that increases the financial incentive to accept longer commutes. Commuters can deduct over CHF 30,000 in expenses, depending on the canton they live in and the distance they commute, with no specific maximum limit. Motor vehicle taxes also differ from canton to canton. Many cantons impose lower tax rates on electric cars – or even grant their owners complete exemptions from motor vehicle taxes.

4. Health insurance: Mandatory health insurance plans reveal gap between urban and rural areas

Health insurance premiums are one of the biggest non-discretionary expenses paid by households. Rising life expectancies and greater prosperity have led to a continuous increase in this budget item in recent years. Nevertheless, the average nationwide premium in Switzerland does not say much about the actual premiums paid by a household because the annual health insurance premium can vary heavily depending on the place of residence.

These regional difference may be significant. In extreme cases, an adult in Appenzell Innerrhoden will pay a premium that is more than CHF 3,000 lower than in Basel-Stadt. In addition to the differences in basic premiums, disparities in individual premium discounts result in sharp regional contrasts in net premiums, especially for low-income households.

5. Childcare costs and family allowances: Major differences between cantons

For working parents, external childcare services often represent a large item in their budgets. However, there are often huge contracts between the fees charged by childcare facilities and the subsidies offered by cantons and municipalities. A middle-class family can pay up to five times more to put their child in daycare depending on where they live.

The family-specific tax deductions and childcare costs and child allowances vary from canton to canton. After all, parents are entitled to a family allowance. While several cantons adhere to the minimum rates laid out in Swiss federal law, others grant higher allowances. When all parameters are taken into account, the Canton of Valais has the highest level of attractiveness for families from a financial standpoint.

Summary: Appenzell Innerrhoden leads the rankings

The average household has the most affordable cost of living in the Canton of Appenzell Innerrhoden, followed by Uri and Glarus. With low housing costs, plus reasonable tax burdens and levels of other expenses, these three cantons proved to be most affordable. The middle of the pack includes several differently positioned cantons with rural or suburban characteristics.

The heavily urban cantons of Geneva and Basel-Stadt are situated at the bottom of the scale. High housing costs, coupled with an above-average tax burden and high health insurance premiums make living in those places expensive for average households.

Affordability of Swiss cantons

Affordability of Swiss cantons 

Synthetic indicator, Switzerland = 0, commuting expenses and external childcare in 2021 included

Source: Credit Suisse

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