In March 2024, 58% of voters voted in favour of paying an additional 13th month of state pension. That triggered a fierce debate on how to fund it. This week, Switzerland’s Federal Council said it planned to fund the increase with higher VAT with no rise in salary taxes.
The news was delivered by Elisabeth Baume-Schneide, Switzerland’s minister of internal affairs, a role that covers pensions. The Federal Council’s argument for funding higher pensions entirely with a VAT increase is centred on ensuring that everyone, including pensioners contribute to their funding rather than increasing the burden more exclusively on those working, reported RTS.
The Federal Council also decided to reduce the annual percentage it contributes to the state pension fund. The extra 13th month will increase total outgoings. To avoid a larger contribution at a time when the federal government is spending more that it collects, it wanted to cut the percentage from 20.2% to 18.7% to leave the contribution amount unchanged. As a compromise it settled at 19.5%, a percentage that increases the amount paid but at a level below that if the percentage was left unchanged.
Expectedly, the plan has received a mixed reaction. The Socialist and Green parties and key unions have criticised the Federal Council for limiting the extra money it plans to put into the state pension system. The same parties and others, including the Swiss People’s Party (UDC/SVP), have criticised the Federal Council for not taxing salaries harder to fund higher pensions. The key argument for increasing the payroll tax rate is that it forces those on higher salaries to carry more of the burden.
On the other hand, employers and parties including the PLR/FDP are happy with the Federal Council’s plan. They argue that taxing workers more means some combination of lower take home pay and higher labour costs, something they argue will hurt SMEs in particular.
The Federal Council’s decision will now be sent to parliament, the Council of States, and possibly voters.
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