The referendum on the Federal Act on Tax Reform and AHV Financing (TRAF) will be held on 19 May 2019. For the Federal Council, the proposal offers a balanced solution for two urgent problems. President Ueli Maurer and Federal Councillor Alain Berset explained the reasons for accepting the proposal during a joint press conference on 18 February 2019. It will safeguard jobs and tax receipts, and at the same time strengthen the AHV.
Internationally competitive corporate taxation and reliable retirement provision are two important cornerstones for Switzerland’s prosperity. Reforms are urgently needed in both areas: corporate taxation has to be adapted to keep the business location attractive and ensure that it meets international requirements; the AHV needs additional funds to be able to pay the rising number of pensions.
The new proposal takes account of the criticism of two proposals rejected in 2017: the concerns of the cities and communes are taken into consideration, and the additional tax burdens and relief are more balanced. The supplementary financing for the AHV will create social compensation for companies’ tax relief.
Innovation is promoted
The new tax system is fairer, as the same taxation rules will generally apply to all companies in the future. Hitherto privileged companies operating internationally will be taxed slightly more on the whole, while other companies will pay less tax overall than at present. The reform will enable Switzerland to safeguard jobs and tax receipts and maintain its leading position in the competition for innovative companies. Research and development will be promoted. Switzerland as a knowledge hub will also benefit from this. The proposal will lead to a higher tax burden for shareholders. Stricter rules will apply to the taxation of dividends and the redemption of capital in the future.
If the previous tax privileges for companies operating internationally were abolished without substitution, Switzerland would become less attractive as a business location. Consequently, many cantons are planning to reduce profit taxes for all companies. As the Confederation benefits from economically attractive cantons, the cantons’ share of direct federal tax receipts will be increased from 17.0% to 21.2%. The cantons, for their part, will adequately compensate the cities and communes for any repercussions of cantonal reforms.
Estimated reduction in receipts of 2 billion
In the short term, the tax measures will result in an estimated annual decline in receipts of around CHF 2 billion for the Confederation, cantons and communes. This figure includes the tax reductions planned by the cantons, which are not part of the proposal. However, a study by the Federal Tax Administration on the dynamic development of receipts shows that receipts are higher in the medium to long term with a reform than without it.
2 billion more for the AHV
The proposal will provide the AHV with around CHF 2 billion more p.a. from 2020. It will thus quickly give it urgently needed additional receipts to secure pensions. The AHV’s financial situation is deteriorating rapidly. Even now, current receipts are no longer sufficient to cover expenditure. This situation will deteriorate further with the retirement of the baby boomers and increasing life expectancy.
Consequences of rejection
Legal uncertainty would arise for companies operating internationally without the abolition of tax privileges. Switzerland would have to face foreign countermeasures that would harm our economy. Without countermeasures, the AHV’s financial problems would quickly worsen and would have to be solved entirely with the next AHV reform.
The reform is a good compromise. It will contribute to healthy public finances for the Confederation, cantons and communes, secure attractive jobs and strengthen the AHV. The entire Swiss population will benefit from this. The Federal Council and Parliament thus recommend accepting the proposal.
AHV 21 reform
The Federal Council is currently preparing a comprehensive reform of the AHV with AHV 21. This aims to ensure the financial equilibrium of the AHV and maintain the level of AHV pensions. If the Federal Act on Tax Reform and AHV Financing (TRAF) is adopted on 19 May 2019, the Federal Council will adjust the AHV 21 reform accordingly. However, as only some of the AHV’s funding requirements would be covered with TRAF, the AHV 21 reform will remain necessary even if the proposal is accepted. The Federal Council plans to submit the AHV 21 proposal to Parliament before the end of this year.