VAT to be increased to fund 13th Swiss pension payment

Keystone-SDA

To fund the 13th old-age pension payment, VAT will be increased by 0.4 percentage points. This has been confirmed following parliament's approval of the bill in the final vote. It is now up to the electorate to decide.

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The Senate and the House of Representatives had long debated whether the “13th month’s pension” under the old-age pension scheme should be financed solely through VAT, or through a combination of VAT and payroll deductions. On Friday, however, both chambers reaffirmed their support for the compromise proposal put forward by the Conciliation Committee.

The House of Representatives did so on Friday by 108 votes to 85, with six abstentions, while the Senate approved it by 28 votes to 13, with three abstentions. The House of Representatives had originally wanted to introduce a temporary increase in VAT, while the Senate had sought to increase payroll deductions as well to fund the 13th pension payment.

Reduced VAT rate to remain

Following parliament’s approval, the standard VAT rate will be increased by 0.4 percentage points from 2028, and the special rate for the hotel industry will rise by 0.2 percentage points. The reduced rate for everyday essentials, such as food and medicines, remains unchanged. This means the old-age pension scheme will receive less money than the additional cost of the 13th pension.

However, the VAT increase is not yet a done deal. As the Constitution must be amended to implement it, the people and the cantons must give their approval at the ballot box. The referendum could take place before the end of the year, Finance Minister Karin Keller-Sutter recently said in the Senate.

The 13th pension will be paid out to all pensioners for the first time at the end of the year – that much is certain. Some CHF4.2 billion ($5.2 billion) will be required for this in the first year. By 2030, the figure is expected to be around CHF4.5 billion, and by 2040, CHF5.4 billion.

In March 2024, 58% of voters and 16 of the 26 cantons approved the “13th pension” at the ballot box.

+ Five key takeaways from Switzerland’s pension votes

However, neither higher payroll contributions to the old-age pension scheme nor a VAT increase have been ruled out. The government has included a scenario in its “AHV 2030” reform proposal in the event of insufficient funding: it comprises a combined increase in VAT and wage contributions, as well as an option involving a VAT increase alone.

Social partners not satisfied

The social partners had criticised the decision to increase VAT for the old-age pension scheme following the finalisation of the proposal. However, their reasons for the criticism were not the same.

The Employers’ Association pointed out that a permanent increase in VAT would have undesirable economic effects. The Employers’ Association, the Trade Association and the business federation Economiesuisse would have supported a temporary increase in VAT – in order to create scope for long-term reforms.

In contrast, the umbrella organisation for employees, Travailsuisse, wrote that with this decision, the parliamentary majority was accepting a deterioration in the old-age pension scheme’s finances, even though a satisfactory solution had been on the table.

Translated from German, sub-edited by ts