Switzerland OKs Tax and Pension Reforms

Switzerland’s voters, in a referendum, boosted contributions to the state pension plan and also ended preferential lower local tax rates meant to attract non-Swiss companies.  

State pension funds, on the other hand, will see an extra 2 billion franc per year. The first 800 million will come from the federal government, while companies, employees, and employers will cover the rest. Employer and worker retirement contributions will increase by 0.15% each, about a franc and a half per every 1,000 earned.

These reforms seek to keep corporate taxes in line with the Organization for Economic Co-operation and Development and European Union (EU) standards, and help Switzerland’s pension system prepare for the retirements in its aging population.

Gaining more attention was another ballot question, tightening gun controls. The gun decisions follow recent attacks such as the New Zealand Christchurch massacres and other firearm-related tragedies. Switzerland had been reluctant to conform to more restrictive EU standards. The nation is not in the EU, but it is part of a European consortium called the Schengen, which follows many of the same policies.

If it had rejected strengthening its gun laws, Switzerland would risk losing its Schengen membership, which allows free passage across 26 European countries.

As for taxes, multinational companies, which had enjoyed special low taxes from Swiss cantons—the nation’s local jurisdictions, analogous to American states—will lose them thanks to the vote. The referendum requires that all businesses have the same tax rates. The multinationals currently pay corporate tax rates as low as 7.8% to 12%, where the average Swiss firm is taxed between 12% and 24%.

However, the government expects a short-term deficit of 2 billion Swiss francs due to the changes. To help out revenue-deprived cantons, the national government will raise its share of federal tax revenue.

The tax and pension changes resulted from longtime disagreements between left- and right-leaning political parties. Lefties have argued that Switzerland’s corporate tax structure prefers multinational workers over the average employee.

The approvals are seen as a good sign by political observers, as the country has been hesitant to pass any overhauls in recent years. Analysts at S&P Global said the tax reform is “in line” with its expectations and considers it important for avoiding “legal uncertainty for businesses.”

A previous attempt to overhaul the tax laws was rejected at the polls in 2017.