Switzerland to Raise VAT to Fund 13th Pension Payment

The Swiss parliament has approved a plan to increase value-added tax (VAT) in order to finance the country’s new 13th old-age pension payment. The decision now moves to the public, as voters and cantons must approve the constitutional amendment in a referendum.

Under the approved proposal, the standard VAT rate will rise by 0.4 percentage points starting in 2028. A reduced increase of 0.2 points will apply to the hotel sector, while essential goods such as food and medicines will remain unchanged under the current reduced rate.

Lawmakers had debated for months over how to fund the additional pension payment. The final compromise rejected a mixed funding model that included payroll deductions and instead relied primarily on VAT adjustments.

The House of Representatives approved the measure by 108 votes to 85, while the Senate backed it by 28 votes to 13. Both chambers ultimately supported the compromise put forward by the Conciliation Committee after prolonged discussions.

The 13th pension benefit, which was approved by Swiss voters in a previous referendum, will be paid out for the first time at the end of the year. The program is expected to cost around CHF 4.2 billion in its first year, with costs rising to CHF 5.4 billion by 2040.

Government officials argue that the VAT increase is necessary to ensure long-term sustainability of the old-age pension system. However, the proposal has sparked debate among social and economic groups.

Employers’ associations and business groups have criticized the decision, warning that a permanent tax increase could negatively affect economic competitiveness. They had preferred a temporary VAT adjustment combined with structural reforms.

On the other hand, employee organizations have expressed concern that the chosen funding method may weaken the financial stability of the pension system. They argue that a more balanced solution had been available during negotiations. The final decision now rests with Swiss voters, who will determine whether the VAT increase should be implemented as part of the country’s pension funding strategy.

Why This Matters:

The outcome will have a direct impact on Switzerland’s tax system, pension sustainability, and overall cost of living. It also reflects the ongoing challenge of balancing social welfare commitments with economic stability.