Swiss lawmakers propose tax hike for defense budget, shifting risk to federal coffers

Lawmakers in the Swiss Council of States have presented a novel solution for funding a significant increase in the defense budget, aiming to secure 24 billion francs for additional military expenditures over the coming years. The proposal shifts the financial burden and risk, ensuring that a failure to approve a tax increase would impact the federal budget rather than the army's procurement plans directly.

Defense Minister Martin Pfister is tasked with persuading the public to accept a tax hike for national defense. The Federal Council's initial plan was to raise the value-added tax (VAT) by 0.5 percentage points for twelve years, a move estimated to cost consumers around 2 billion francs annually. However, this proposal faced broad opposition, with only the Center Party supporting it, while the Swiss People's Party (SVP), FDP.The Liberals, and the left-wing parties rejected it.

In a surprising preliminary decision, the Finance Commission of the Council of States has backed a VAT increase, but with modifications. They propose a smaller hike of 0.2 percentage points, down from 0.5, which would reduce the additional burden to 0.8 billion francs per year. Crucially, they suggest extending the duration of this tax increase to 17 years. Because VAT rates are enshrined in the constitution, any change would necessitate a mandatory public referendum.

The commission's most significant adjustment aims to prevent the army's funding from being solely dependent on the outcome of the tax referendum. Under the Federal Council's original plan, a special arms fund would be legally tied to the tax increase. If voters rejected the higher taxes, the fund would be jeopardized. This is a concern for conservative parties, many of whom doubt the public's willingness to approve higher taxes for defense. The commission's new approach allows the fund to temporarily incur debt, provided it has watertight financing. Instead of the tax increase, they propose a statutory allocation from the federal treasury, obligating the Confederation to transfer up to 1.3 billion francs annually to the fund. This mechanism ensures a more stable, albeit longer-term, funding stream, with the extended duration ultimately yielding a similar amount of money.