Under outside pressure, Switzerland plans to abolish the tax privileges it offers to certain foreign companies, a system designed to attract businesses to the country.
To reduce the risk of companies leaving, cantons will replace this system with lower standard company tax rates, a move that will lower tax revenue.
Tax rates in Switzerland vary significantly from one canton to another, so some cantons will be faced with a bigger adjustment than others.
At the same time, Switzerland’s pay-as-you-go state pension system is headed towards financial meltdown – more people are spending longer in retirement, while the number of workers funding the system via social taxes on their salaries is not keeping up. In 2017, pension payments exceeded receipts by more than CHF 1 billion. The financial hole is expected to be CHF 53 billion between now and 2030.
The vote on 19 May 2019 on tax and pension reform aims to deal with these two challenges together.
So where would the money come from to fill the hole left by lower standard company tax rates and the looming hole in state pensions?
The hole from lower company taxes would mainly be funded by the federal government. Bern plans to offer money to the cantons both directly, to the tune of around CHF 1 billion from direct federal tax, and indirectly through changes to the tax equalization mechanism – every year financially weak cantons get money from a central pot funded by contributions from wealthy cantons. The federal government aims to support financially weak cantons in this way with an extra CHF 180 million over seven years. There would be some other changes to tax rules too.
To shore up the pension system, the plan aims to take an extra CHF 2 billion annually from salaries. Social taxes (AVS/AHV) on Swiss salaries would rise by 0.3% – 0.15% employee and 0.15% employer. So an extra CHF 300 a year would be collected from a salary of CHF 100,000.
A recent poll conducted by gfs.bern suggests the plan will be accepted. 59% of those polled are in favour of the plan – 35% definitely and 24% quite in favour, while only 35% are against it – 20% definitely and 15% quite against. 6% were either undecided or declined to respond. 5,817 people were interviewed between 23 and 30 April 2019.
The plan does not address the official retirement age – 64 for women and 65 for men. Pay-as-you-go pensions are in trouble largely because increases in retirement ages have not kept up with rising life expectancy. This piece of pension arithmetic cannot be fudged forever.
Switzerland’s government is working hard on another plan, dubbed AVS21, to tackle the remaining state pension shortfall. So far the plan proposes modestly increasing the retirement age of women to 65, to bring it into line with the one for men, and raising the VAT rate by 1.5% to fund some of the expected shortfall.