In Switzerland, parents can claim tax allowances for their children. Currently they can deduct CHF 6,500 for each child plus up to CHF 10,100 per child for money spent on childcare from their federal tax calculation.
Residents of Switzerland pay three layers of tax: federal, cantonal and municipal. These particular deductions apply only to federal tax.
The Federal Council and Parliament decided to increase the per child deduction from CHF 6,500 to CHF 10,000 and the maximum allowance for money spent on childcare outside the family from CHF 10,100 to CHF 25,000 to remove the tax-based financial barrier for some working parents.
When the incremental tax paid by working parents exceed the difference between additional pre-tax income and the cost of childcare, parents can end up losing money by working. The government wants to solve this problem and alleviate the shortage of skilled workers.
The first change is expected to reduce federal tax revenue by CHF 370 million and the second by roughly CHF 10 million every year. The plan has been tweaked due to the coronavirus. Its introduction may be tapered to reduce the lost tax revenue to between CHF 50 to 100 million in the 2021 tax year.
The government says the increase in the allowances will benefit the roughly 60% of families that have to pay direct federal tax.
However, some argue that the additional deductions will reduce government income and public spending and unfairly favour those on higher incomes. So they decided to challenge the government’s plan with a referendum.
Those against the higher deductions fear the lost revenue will lead to cuts in public services that will affect the middle class. They believe there are better ways to reduce the costs of raising a family.
Most in government disagree. They think the economic incentives and benefits outweigh the costs. A majority of the Federal Council, Switzerland’s executive branch, parliament (132 yes, 62 no, 3 abstentions), and the Council of States, Switzerland’s upper house (25 yes, 17 no, 3 abstentions) are in favour of the increased federal tax deductions for childcare.