Swiss committee cuts proposed VAT rise for army fund

A second Swiss parliamentary committee has rejected the government’s plan to raise value-added tax by 0.5 percentage points to finance an army procurement fund, SRF reported. The Security Policy Committee of the Council of States instead supports a 0.2 percentage-point increase and an alternative financing model.

The Council of States will decide on the proposal during its autumn session.

The government wants to raise the standard VAT rate by 0.5 percentage points for 12 years to fund military procurement. The Security Policy Committee rejected that plan by eight votes to three, with one abstention, according to Parliamentary Services.

The committee agreed that a debt-financed fund was necessary to pay for military equipment in response to the deteriorating security situation. It wants the fund to have a volume of 24 billion Swiss francs and run for 18 years, until the end of 2045.

The committee also proposed setting a 12 billion franc limit on loans to the fund. From its eighth year, that limit would fall by 1.2 billion francs annually. The government and the Council of States Finance Committee have proposed a loan limit of 6 billion francs.

Fund and tax vote to be separated

The Council of States Finance Committee and State Policy Committee want the legal framework for the army fund to be considered separately from approval of the VAT increase and the mandatory nationwide referendum on it. The constitutional amendment required for the tax increase would need approval from voters and the cantons.

Under the proposal, the fund would remain in place even if voters rejected the VAT increase. Any referendum against the fund legislation would also be voted on separately.

The VAT referendum would take place in 2028 rather than 2027, as the government proposed. The tax increase would therefore take effect in 2029 instead of 2028.

The Finance Committee has also proposed holding the army VAT vote together with a planned extension of the VAT surcharge for the Railway Infrastructure Fund. SRF parliamentary correspondent Andy Müller said the committee believed a joint tax increase for public transport and the army could have better prospects at the ballot box.

Alternative financing

The Security Policy Committee ultimately backed the financing model proposed by the Finance Committee. It calls for a 0.2 percentage-point increase in the standard VAT rate, supplemented by unused credit allocations and contributions from the federal budget.

The committee said the broader financing base could allow military procurement projects to be implemented quickly and comply with the debt brake rules.

The government has said the additional money could fund the army’s development of capabilities to counter hybrid activities and long-range attacks, offset higher procurement costs, and finance a possible second long-range ground-based air-defence system as well as additional costs for the Patriot system.