Swiss trade union federation backs VAT rise for 13th pension

The Swiss Trade Union Federation has backed a proposed increase in value-added tax to finance the 13th AHV pension payment, Swiss public broadcaster SRF reported. Voters approved the additional payment, which will be paid for the first time at the end of the year.

Although VAT is often considered socially regressive because it can place a heavier burden on lower-income households, the reduced rate of 2.6 percent for everyday necessities will not increase, according to SRF economics editor Susanne Schmugge.

The reduced rate applies to products including food, medicines, hygiene products and magazines. Other expenses, such as rent, taxes and health insurance premiums, are entirely exempt from VAT. These costs account for a large share of spending by households with lower incomes.

The higher VAT would instead apply to items such as restaurant visits and larger purchases, including televisions. It generally affects goods and services that people can afford rather than those they urgently need.

Higher-income households also pay substantially more VAT overall because they spend more on consumption, Schmugge said. The increase could still contribute to inflation, which tends to affect lower-income households more heavily, but inflation in Switzerland is comparatively low.

The federation had long favoured financing the AHV through wage contributions. Its decision to support the VAT increase marks a change in that position.