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MYTHBUSTER: Yes, Switzerland does have people living in poverty

Many people, especially those living abroad, believe that only the very rich live in wealthy Switzerland. Is this really the case?

MYTHBUSTER: Yes, Switzerland does have people living in poverty
People are lining up in Geneva during the Covid pandmeic to receive free food. Photo: FABRICE COFFRINI / AFP

It is perhaps not surprising that people think of Switzerland as the country where only the mega-rich live.

After all, in various international surveys and studies, Switzerland consistently ranks among the world’s richest nations, whether in terms of household income or individual assets.

READ MORE: EXPLAINED: Why is Switzerland so rich?

Overall, according to the Federal Statistical Office (FSO), “the standard of living in Switzerland remains one of the highest in Europe. This means that despite the high price levels in Switzerland, the population’s financial situation, after deduction of obligatory expenditure, is more comfortable than that of its neighbouring countries and countries in the European Union”. 

However, while all this is true, these statistics don’t paint the entire picture of Switzerland’s demographics.

In fact, the super-wealthy — those with assets worth more than 1 million  — account for only 15 percent of the adult population.

The largest group, according to 2019 FSO data, (last figures available but still valid today), is middle-class, which constitutes 57.6 percent of the population.

This is defined as people whose gross income is between 70 and 150 percent of the median income. In Switzerland this means 3,930 to 8,427 francs a month for a single person, and from 8,253 to 17,685 a month for a family of four.

What about poorer people?

Yes, Switzerland does have people living under the poverty threshold.

A FSO study released in 2021 indicates that 8.7 percent of the population – around 735,000 people – live in poverty, which is defined in Switzerland at 2,279 francs per month on average for a single person, and 3,976 francs per month for two adults and two children.

READ MORE: Almost one in ten live in poverty in Switzerland: Report

“In European comparison, the Swiss at-risk-of-poverty threshold is among the highest in Europe, after Luxembourg and Norway”, according to FSO.

However, the cost of living in Switzerland is also higher than anywhere else in the eurozone.

The poor became the focus of particular attention at the beginning of the Covid pandemic in 2020, as thousands of people lined up on Saturdays for free food distribution programme in Geneva.

Many found themselves in precarious circumstances, as all but essential businesses were forced to close, leaving hundreds of people without a job and little (or no) income.

“We know this population exists,” said Isabelle Widmer, who was responsible for  coordinating Geneva’s response to the crisis and was providing support to the food drive.

“But it has been astonishing to see how this population was so immediately fragilised by this crisis”, she said at the time.

READ MORE: Coronavirus crisis lays bare poverty in Geneva as thousands queue for food

Who are the poor in Switzerland?

“The risk of poverty is largely determined by family circumstances and the level of education”, according to FSO.

This group is primarily made up of single-parent households, people with no education or training beyond the compulsory schooling, single people under 65 without children and who live alone, as well as immigrants.

Where do these people live?

Unlike some other countries, Switzerland doesn’t have ‘poor’  districts or, even less so, slums.

However, most major cities have neighbourhoods where there are poorer residents for instance, Kreis 4 between the Hauptbanhof and Langstrasse in Zurich, Paquis in Geneva, and Renens in Lausanne. 

This doesn’t mean that everyone residing in these areas falls below the poverty level, but this is where large numbers of these people live.

What help is available to the poor?

Any legal resident of Switzerland who lives below the poverty line is eligible for social assistance of some kind.

Most common is welfare, the amount of which depends on individual circumstances. About 3.2 percent of Switzerland’s population have received “social assistance in the form of a financial benefit on at least one occasion” in recent years, according to FSO.

“The risk of depending on social assistance is greater for certain population groups such as children, foreign nationals, divorced persons and those with no post-compulsory education. The financial social assistance rate is higher in urban regions and increases in parallel to the size of the commune”, FSO noted.

Among those groups, foreigners are the ones who receive the most benefits.

Additionally, health insurance  premiums for people on low incomes or families with many children can be reduced through federal and cantonal subsidies. 

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EXPLAINED: What the steep rise in Swiss interest rates could mean for you

The Swiss National Bank (SNB) raised the key interest rate by 0.75 percentage points, putting it back in positive territory at 0.5 percent.

EXPLAINED: What the steep rise in Swiss interest rates could mean for you

As announced by Switzerland’s central bank on Thursday, the rate change applies from Friday, September 23rd.

“The bank’s aim is to counter the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected”, according to SNB.

The SNB has not said how long the current rate will be in place, but noted that “it cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term”.

READ MORE: Swiss central bank announces big rate hike in inflation fight

Inflation rate in Switzerland currently stands at 3.5 percent. While it is much lower than in the eurozone, where it exceeds 9.1 percent, it is still higher than its usual rate of below 1 percent.

Why has the SNB raised the interest rate for the first time since 2015?

For the same reason that other central banks have done so, including the European Central Bank and the Federal Reserve in the US: price stability

In general, central banks see increasing interest rates as a response to rising inflation: higher rates help reduce the overall level of demand and, subsequently, also the upward pressure on prices.

Whether this strategy will work is another matter.

The SNB rate hikes will “have a fundamentally dampening effect on inflation”, Felix Oeschger, analyst at Moneyland price comparison platform, told The Local.

“However, it is far from clear whether these alone will be enough to curb inflation”, he added.

One for the reasons for this uncertainty, Oeschger said, is that “the energy crisis and the high prices of some agricultural commodities, such as wheat, are a result of the Ukraine war. These prices are more difficult to influence with key interest rate increases”.

In its inflation forecast, the SNB predicted the inflation will drop to 2.4 percent in 2023.

But “considering that the SNB has continuously revised its inflation forecasts upward since December 2021, it is quite conceivable that inflation in Switzerland will continue to rise or at least remain high”, Oeschger pointed out.

READ MORE: EXPLAINED: The groups most affected by inflation in Switzerland

Will the Swiss consumers benefit (or not) from the higher interest rates?

It depends on what you are looking to buy.

If you are planning to buy big-ticket items that are usually purchased with credit — like homes — then you may have to dig deeper into your pockets.

If you already have a fixed-rate mortgage, then you are safe from rate increases for the term of your mortgage.

But for new buyers or those with variable-rate mortagages, things may be more problematic.

“It is not excluded that mortgage interest rates will reach 3 to 4 percent next year”, from the current 2.6 to 3.1 percent, according to Donato Scognamiglio, director of real estate platform Iazi.

What about rents?

Tenants may not be better off than homeowners.

Many have already received notices of higher rents to compensate for increased costs of energy.

Now another charge could be added as well, though probably not immediately.

“Rents will go up, but only when the reference interest rate itself is raised”, Scognamiglio said.

The benchmark interest rate is the average of all mortgage interest rates. If the reference rate increases by 0.25%, tenants will have to pay 3 percent more rent. “I expect this to happen next year”, he said.

But it is not all bad news; higher interest rates will yield some benefits as well.

For instance, if you have certain types of investments, you may see more money coming in.

“I expect yields on fixed-income financial products such as bonds to continue to rise”,  Oeschger said.

“In the case of medium-term notes issued by Swiss banks, we have already seen significant increases since the beginning of the year”, he added.

As for savings accounts, however, “the banks have so far been very hesitant to raise interest rates, but if monetary policy tightens further, we can expect interest rates to rise slightly here as well”.

Generally speaking, what will become cheaper and more expensive for consumers?

The bad news here is that everything that has to do with energy, even indirectly, will become more expensive.

This includes “heating, transport costs, electricity and also food”, another Moneyland expert, Ralf Beyeler told The Local.

READ MORE: Pasta up by 13 percent: How food and energy prices in Switzerland are rising