VAT's persistent source of support for various sectors
In the heart of Europe, Switzerland is once again contemplating a change in its value-added tax (VAT) rate. The proposal, put forth by National Councilor Patrick Hässig, suggests an increase to 8.8% to finance the 13th AHV pension. However, this proposal faces opposition, primarily from the FDP, who advocate for an AHV debt brake and argue that VAT increases should be accompanied by expenditure cuts.
VAT, unlike income or wealth taxes, does not depend on financial circumstances. It is based on the "rainy day fund" principle, where everyone pays the same percentage on their purchases, affecting households with a small budget relatively more. Despite this, Switzerland's VAT rates remain lower compared to many EU countries, with rates between 19 and 25 percent.
The political landscape of Switzerland has seen several instances of VAT increases in the past. In 1998, the people accepted the Finôv initiative, which provided for a temporary increase in VAT by 0.1 percentage points. A more substantial increase by 1 percentage point followed a referendum in 1999. The people also agreed to a temporary increase of 0.4 percentage points in VAT in 2009 to address IV issues.
The trend of the VAT rate is clear: it has been increasing over time. Since its introduction in the mid-1990s, VAT has served as a reliable source of income for AHV, IV, or infrastructure projects. The most recent increase, of 0.7 percentage points, was approved by the National Council. The Council of States has also agreed to this VAT increase.
However, the political compromise "Pension 2020" in 2017, which included a further increase in VAT by 0.6 percentage points, was rejected at the ballot box. This rejection led to the only reduction in VAT in history, but the rate remained at 7.7 percent due to the railway initiative Fabi agreed upon in 2014.
The National Council has proposed raising VAT to 8.8 percent, following the Federal Council's proposal, to finance the 13th AVS pension. Paul Rechsteiner, on the other hand, proposes that the 13th AVS pension can be financed without additional burden.
The development of VAT rates in Switzerland shows that VAT has become a purpose tax for national emergencies. However, the long-term security of AVS remains unresolved despite the use of VAT to quickly solve urgent financing issues. The people may soon decide on the VAT increase as an additional burden.
VAT is a consumption tax levied on almost all goods and services. It is a significant source of revenue for the Swiss government, but its impact on lower-income households is a matter of ongoing debate. As the country decides on this proposed VAT increase, the conversation around fiscal responsibility and social equity will undoubtedly continue to evolve.
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