Switzerland's recovery has been broadly balanced despite strong appreciation of the Swiss franc. Capital markets' concerns regarding sovereign debt in several countries have led the Swiss franc to appreciate to record levels. While deteriorating price competitiveness was partially compensated by strong global demand for Swiss goods and services, exports have recently begun to weaken. The SNB has introduced an upper limit on the euro/Swiss franc exchange rate to stop appreciation. While keeping interest rates low for some time is appropriate, unusually low interest rates have boosted mortgage lending and house prices. To avoid building up imbalances, additional macroprudential tools should be introduced.

Tax reform can reduce incentives to leverage wealth and could increase potential growth. The tax burden in Switzerland is low in international comparison, mostly reflecting the substantial weight of non-tax compulsory contributions for the health and pension systems managed by private institutions. Shifting from the taxation of personal income to taxation of goods and services by widening the base of the VAT and increasing the standard VAT rate would be growth-enhancing.

There is scope for such reform as personal income taxation contributes an unusually large share of tax revenues while taxation of goods and services is low. Such a reform could be accompanied by steps to cushion real income losses for low-income households. Generous provisions allowing the deductibility of interest payments from taxable personal income should be limited as it raises households' incentives to leverage and redistributes income towards wealthy households.

Implementing the planned reform of the regulation of the biggest two banks will reduce financial risks. The largest two banks remain highly leveraged, reinforcing the potential risks for taxpayers and the economy. Parliament has approved new legislation which will make substantial progress in addressing these risks. The reform introduces substantially higher risk-based capital requirements and a leverage ratio of about 5%.

Read more inside OECD Economic Surveys: Switzerland 2011

For more information visit http://www.researchandmarkets.com/research/54f5ec/oecd_economic_surv