Capital gains to remain tax free

Voters reject abolition of armed forces swissinfo.ch

Investors in Switzerland breathed a sigh of relief on Sunday, when voters threw out a proposed tax on capital gains.

Nearly 70 per cent of voters on Sunday came out against the proposed tax, which would have levied a 20 per cent tax on all gains above SFr5,000 ($3,000).

Another proposal – put forward by the government to cap state debt – received an overwhelming endorsement, with nearly 85 per cent in favour.

The initiative for a capital gains tax, inspired by the Trades Union Federation, would have levied a 20 per cent tax on all gains above SFr5,000 ($3,000).

The rejection of capital gains tax, put forward by the Trades Union Federation, leaves Switzerland and Greece as the only two industrialised nations not to levy taxes on increases in the value of assets.

The finance minister, Kaspar Villiger, said he was surprised at the extent of rejection of a capital gains tax, but commented that it would benefit Switzerland’s position as a leading financial centre.

He added that he understood the arguments of those who had called for the tax, but that the tax burden was appropriately shared, with the rich already carrying a heavy burden.

Trade unions disappointed

Trade unions reacted disappointedly to the news. The Federation’s general secretary, Serge Gaillard, told Swiss radio that it was difficult to introduce new taxes when the government’s finances were in tolerably good shape.

He added that opponents had done everything they could to persuade voters that the tax would hurt small and medium-sized businesses, as well as the elderly, even though this was “patently false”.

Capping the national debt

A government-inspired initiative to cap the national debt received a ringing endorsement, with nearly 85 per cent of voters in favour. The federal deficit stands at SFr108 billion, most of which was accumulated in the recession-hit 1990s.

The initiative means the government and parliament are now compelled to build up surpluses in boom years to help finance deficit spending in leaner years.

Villiger said that by approving the plan to cap government debt, the country had proved it was committed to maintaining stable state finances.

It does not prevent the state from running deficits during recessions, and it would not have stopped the government from pumping cash into the collapsed national carrier, Swissair.

Tax evasion

The rejection of capital gains tax was applauded by both business and the Bankers’ Association. They said it would preserve Switzerland’s leading role as a financial centre, and save small- and medium-sized businesses from a crippling tax burden.

The country’s business federation had argued that a tax on capital gains was unnecessary because Switzerland already has a wealth tax.

This view was supported by Jean-Christian Lambelet, professor of economics at Lausanne University. “We have a wealth tax in Switzerland, unlike in most other countries, so there is really no reason to tax capital gains,” he told swissinfo.

“Strictly speaking, capital gains are a form of income… but if you tax capital gains then you should be able to deduct capital losses, which was allowable under the initiative but only to a small extent.”

As to why the public rejected the tax, Lambelet said there was a perception that the tax burden is already high enough. “The burden of taxation in Switzerland has increased in the past couple of years and people just didn’t want to have an extra tax.”

He added that the vote might also have been influenced by an increase in the number of people owning shares “even though small capital gains would have been exempt”.

swissinfo