Zug's Dilemma: Too Much Money, Not Enough Conscience – How a Swiss Tax Haven's Latest Health Plans are Funded at the Expense of the Global South

The Swiss canton of Zug has a problem: it made so much money last year that it no longer knows how to spend it. Last week, the government of Zug announced its intention to cover nearly the entire cost of inpatient hospital treatments for its 130,000 citizens in 2026 and 2027. The cantonal parliament of Zug will need to approve the proposal.

?The current situation is not out of the ordinary. In 2021 alone, the canton of Zug reported a surplus of U$333 million (CHF 295 million), which led the canton’s finance director, Heinz T?nnler, to quip that he struggles “to get the money out of the temple.” The cantonal government had to become creative: citizens of Zug can now deduct almost 30% of their rent from their taxes, if they pay taxes at all. 20% of citizens in Zug do not pay any tax, and neither do 60% of the companies located in the canton. The most recent proposal suggests that the canton of Zug will lower premiums for compulsory health insurance by an average of 18%, or around U$ 620 (CHF 700) per person per year, in 2026 and 2027 for all citizens living in Zug. In addition, citizens will pay a significantly lower deductible for an inpatient hospital stay. Specifically, the canton of Zug will pay 99% of hospital bills related to surgeries for everyone living in the canton for at least the next two years.

Zug's Success Comes at the Expense of Poor Countries

The economic success of the Canton of Zug is largely achieved at the expense of citizens in poor countries of the Global South. Switzerland’s low corporate tax rate deprived the world of U$13 billion due to tax evasion in 2021 and is responsible for 5.1% of global tax avoidance losses. The canton of Zug, essentially a tax haven within a tax haven due to Switzerland’s cutthroat tax competition between cantons, has become a place for oligarchs, Politically Exposed Persons (PEPs), over 6,000 shell companies, many of whom are suspected of facilitating money laundering and tax evasion, and commodity traders engaging in questionable business practices in countries of the Global South.

For instance, the Zug-based commodities company IMR Holding AG holds a 49% share in the Indonesian coal miner PT Borneo Prima, which has been linked to the large-scale destruction of rainforest areas in Kalimantan, the Indonesian part of Borneo. In response to mounting public pressure against its operations in Kalimantan, IMR Holding AG claimed to have divested its stake in PT Borneo Prima. However, it merely transferred its stake to its Singapore-based subsidiary, IMR Asia Holding.

This is not an isolated case. There are dozens of mining operations and plantations across Indonesia in which Swiss commodity traders, many based in Zug, hold significant stakes.

Map: Plantations in Indonesia with stakes held by Swiss-based companies

Swiss institutions facilitate these highly exploitative practices in Indonesia and other countries of the Global South both directly and indirectly. In 2018, for instance, Swiss courts granted an injunction to Hashim Djojohadikusumo, the billionaire brother of incoming Indonesian president Prabowo Subianto, who owes over U$ 157 million (CHF 139 million) in taxes to the Swiss authorities and whose villas were auctioned off earlier this year. On 16 December 2018, Switzerland, alongside other members of the European Free Trade Association (EFTA), signed a Comprehensive Economic Partnership Agreement (CEPA) with Indonesia, leading to a significant free trade arrangement between EFTA members and Indonesia. This trade agreement sparked controversy and led to an unprecedented national referendum in Switzerland against the deal with Indonesia. The Swiss Federal Office for Agriculture (FOAG) highlighted, "At the centre of the negotiations with Indonesia was the country's main export product, palm oil, and this was the issue that sparked the referendum. Opponents to the free trade agreement expressed fears that additionally imported palm oil would displace domestic vegetable oils and criticized the environmentally damaging cultivation methods for the extraction of palm oil." The referendum took place on 7 March 2021. Just four days before the referendum, on 3 March 2021, Christian Lüscher, a lawyer and then a member of the Swiss parliament as well as a supporter of the “Yes to the agreement with Indonesia” committee organized by Economiesuisse, made an appeal to the District Court of Eastern Vaud on behalf of Hashim Djojohadikusumo. In his plea to the court, Lüscher requested the suppression of an article by Swiss investigative platform GothamCity concerning Djojohadikusumo's business interests in the palm oil industry. "The tax dispute involving Mr. Djojohadikusumo must be completely dissociated from the diplomatic and commercial relations with Indonesia," Lüscher stated. The appeal was granted, and the Swiss electorate voted in favor of the free trade agreement with Indonesia four days after Lüscher's intervention.

Meanwhile, back in Zug, local authorities have rejected any attempts to introduce more transparency and accountability into the business practices of companies located in the canton. At the very least, rather than subsidizing the health bills of Swiss citizens in Zug, the money could be reinvested to alleviate the health problems caused by the business practices that underpin Zug’s financial success. In Kalimantan, where Zug-based IMR Holding AG operates the aforementioned coal mining business, respiratory problems among citizens now account for 30% of consultations at the local medical center.