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COST OF LIVING

EXPLAINED: Why is Switzerland so expensive?

That the cost of living in Switzerland is notoriously high is hardly a surprise — though it may still shock some people. There are several reasons why this is so.

EXPLAINED: Why is Switzerland so expensive?
Life in Switzerland is expensive. Photo by Claudio Schwartz, Unsplash

Besides chocolate, cheese and banks full of other people’s money, Switzerland is perhaps best known for being expensive. 

The country is especially pricey when it comes to food, beverages, hotels, housing, restaurants, clothing, and health insurance – or pretty much everything you need. 

While Switzerland is expensive for its residents, for people coming from abroad, high costs here are the ultimate culture shock.

READ MORE: Why Zurich ranks as the world’s most expensive city once again

Various studies have shown time and again that Swiss consumers pay much more for basic goods and services than their European counterparts, with the exception of Norway and Iceland.

For instance, one such study found that people in Switzerland have to pay 168 francs for a basket of consumer goods costing on average 100 euros in the EU.

Why is this?

Many reasons have been given to explain this phenomenon. Some of them however are based on popular beliefs rather than economic facts.

One such explanation that is making rounds in Switzerland is that prices in Swiss supermarkets are high because employees in Swiss supermarkets are paid more than their European counterparts.

While Swiss salaries are indeed higher than almost anywhere else in Europe, this explanation does not hold water.

Cost of living in Switzerland: How to save money if you live in Zurich

So what is the real reason for the high cost of consumer goods in Switzerland?

Among the most often cited ones are protectionism and lack of competition, which are inter-related, as the former invariably leads to the latter.

Trade protectionism is a policy that protects domestic industries from foreign competition.

A case in point is milk.

Milk can only be imported if it is in short supply in Switzerland, which is not currently the case. This means that Swiss milk has no foreign competitors vying for the consumers’ attention, and forcing it to lower its price.

This kind of protectionism extends to many other products as well.

But sometimes it works the other way too.

study by the University of Applied Sciences of Northwestern Switzerland shows that foreign producers and suppliers impose large price increases in Switzerland, exploiting high salaries and consumers’ purchasing power.

This means that Swiss buyers are overpaying for their purchases by more than three billion francs, the study found. 

This is the reason why so many people living in border regions go shopping in France, Italy, and Germany, where the same items are considerably cheaper. 

Cross-border shopping: Vaccinated Swiss can now shop in Germany again

This practice is widespread in e-commerce as well.

Anyone who wants to order something online from a foreign store is often redirected to the supplier’s Swiss site, where the prices are often much higher.

This is called ‘geo-blocking’.

This practice finally spurred the public and politicians into action.

READ MORE: ‘Fair prices’: Switzerland moves one step closer to referendum on cost of living

A popular initiative tag-lined “Stop the expensive island” , which aims to fight against overpriced goods in Switzerland, was presented to the parliament in 2017.

It has been stagnating there for four years because PMs couldn’t agree on how to tackle this issue.

But in March, the initiative was revived and is heading toward a referendum (no date has been set yet).

If passed, geo-blocking’ will be prohibited. In the future, consumers and businesses based in Switzerland will have to be treated by foreign online shops the same way as domestic consumers

It is difficult to predict whether Swiss prices will drop significantly as a result of this initiative, but at least there is hope on the horizon.

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ENERGY

EXPLAINED: How high will heating bills be this winter in Germany?

The cost of energy is expected to rise again this coming winter, even though the government's price cap is supposed to be in effect until April 2024. Here's what households can expect.

EXPLAINED: How high will heating bills be this winter in Germany?

The onset of winter will raise concerns for many in Germany about the cost of heating their homes, with memories of last year’s rocketing prices and concerns over domestic gas supply resurfacing. 

But, compared to last year, the energy prices have now largely stabilised, though they are still higher than in 2021.

The stabilisation in prices is partly thanks to the government’s energy price cap which came into force earlier this year to cushion the blow of soaring energy prices by capping electricity costs at 40 cents per kilowatt-hour and natural gas at 12 cents.

READ ALSO: Germany looks to extend energy price cap until April 2024

The federal government plans to maintain this cap until the end of April, though this could be extended even longer, if necessary. 

How high are heating costs expected to go this year?

For the current year, experts from co2online expect somewhat lower heating costs than last year.

Heating with gas, for example, is expected to be 11 percent cheaper in 2023 than in 2022, costing €1,310 per year for a flat of 70 square metres. 

The cost of heating with wood pellets will drop by 17 percent to €870 per year, and heating with heating oil will cost 19 percent less and amount to €1,130.

According to co2online, the costs for heating with a heat pump will drop the most – by 20 percent to €1,1105. The reason for this, according to co2online, is a wider range of heat pump electricity tariffs.

Tax hikes in January

Starting January next year, the government will raise the value-added tax on natural gas from seven to nineteen percent.

Alongside this, the CO2 price, applicable when refuelling and heating, will also increase.

According to energy expert Thomas Engelke from the Federal Consumer Association, these increases will mean that a small single-family household with three or four people that heats with gas would then pay about €240 more per year for gas.

“That’s a lot”, he said. 

Another additional cost factor to consider is that network operators also want to raise prices. However, the federal government plans to allocate €5.5 billion to cushion this increase for consumers as much as possible, so how such cost increases will ultimately affect consumers is currently hard to estimate.

READ ALSO: Why people in Germany are being advised to switch energy suppliers

Overall, it can be said that, from January, consumers will have to brace themselves for higher energy costs, even though massive increases are currently not expected.

Consumer advocate Engelke advised customers to closely examine where potential savings could be made this upcoming winter: “Those who are now signing a new gas or electricity contract should inform themselves and possibly switch. Currently, you can save a few hundred euros. It’s worth it. On the other hand, you should also try to save as much energy as possible this winter.”

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