A brace of tax bills
Two tax bills will be put to the vote in a plebiscite on 8 March 2015. One popular initiative calls for tax relief for families with children while the other seeks to replace VAT with an energy tax.
The Christian Democratic People’s Party (CVP) is striving to position itself as a “family-oriented party”. The first item in the party’s 2014 manifesto states: “We are fighting on behalf of families.” It is therefore fortuitous that the first referendum of the 2015 election year will address the party’s key issue. “Child and education allowances are tax-free”: By incorporating this simple provision into the federal constitution, the CVP aims to ensure families have more disposable income at the end of the month. The party believes the taxation of these allowances constitutes an “unjustified increase in taxable income”.
This reignites a debate about tax and families which took place the year before last. An initiative proposed by the Swiss People’s Party (SVP) then sought to provide tax relief for families looking after their children themselves, but the bill was rejected in November 2013. Financial policy arguments were put forward on that occasion. The same applies to the new bill. The Federal Council estimates that the approval of the CVP initiative would result in a fall in tax revenues of around one billion Swiss francs for federal government, the cantons and the communes.
The CVP essentially fought a lone battle in Parliament. Daniel Stolz, the FDP National Councillor from Basel, dubbed the popular initiative a “nice election campaign gimmick” but that was about the only compliment the CVP received. The overwhelming majority of parliamentarians from left to right were unable to lend support to the initiative. Child and education allowances are a salary component and therefore income-generating, they argue. Families with children already receive tax relief of around nine billion Swiss francs a year (through reduced health insurance fund premiums, graduated nursery charges, social and supplementary benefits and cantonal tax allowances). Already amost half of all households with children do not pay any direct federal taxes. The fact that primarily the wealthy would benefit from this tax relief is also regarded as a shortcoming of the initiative by many parliamentarians. “59 % of children in Switzerland live in middle-class families, and this initiative is for them,” argued Pirmin Bischof, a CVP Council of States member. His words fell on deaf ears. The Federal Council and Parliament advised the Swiss people to reject the bill.
Energy tax instead of VAT
The same applies to the second proposal to be put to the people on 8 March. The Green Liberals (GLP) want to abolish VAT, federal government’s most important source of income, and replace it with an energy tax. A tax on non-renewable energy would make saving energy more attractive. Renewable energies would also benefit from a competitive advantage. Those behind the proposal argue that sustainable energy sources would become competitive compared to petroleum, gas and nuclear power and that the withdrawal from nuclear power could be implemented in a climate-friendly and economically feasible way.
The Federal Council generally supports the popular initiative’s goal of using energy levies to achieve climate and energy policy objectives. However, sacrificing VAT goes too far for the Federal Council and Parliament. Thomas Hefti, the FDP Council of States member from Glarus, calls it a financial policy gamble. The problem is that if public budgets are to be financed solely from energy tax instead of VAT, very high energy tax rates would be necessary and would far exceed energy and climate policy needs. The situation would become tricky if the incentive effect kicked in and households and the economy consumed less and less non-renewable energy as there would have to be a further sharp hike in tax rates.
Just how differently the bill is viewed in Parliament is revealed by a spat between two representatives from the mountain regions. Martin Candinas, the CVP National Councillor from Grisons, contended that the energy tax would have an extremely adverse effect on tourism. “Mountain railways do not run on cold air.” And motorists would think twice about making another trip into the mountains. Jürg Grossen, a GLP representative from the Bernese Oberland, disagreed and argued that the mountain regions, in particular, would benefit enormously as they possess the resources for the production of renewable energies. Or as he put it: “Mountain sunshine instead of coal from the Ruhr” and “hydropower instead of nuclear power”.