Tax on property gains? How the federal government could earn money from the purchase of residential property

The federal government lacks billions - and the financing of the 13th AHV pension and the army is not yet secured. Economists are therefore proposing a tricky measure: a property gains tax at federal level. This could raise around one billion francs a year.

The federal government is running out of money. Last year there was already a shortfall of half a billion francs - and new expenditure in the billions is just around the corner: the 13th AHV pension and the rearmament of the army. To plug the holes, the government is thinking out loud about higher value-added taxes, higher salary deductions and adjustments to the third pillar.

However, economists are putting forward another idea - one that is politically sensitive: the federal government could tax profits from real estate sales in future. Finance Minister Karin Keller-Sutter has so far left this proposal in the drawer. She fears conflicts with the cantons, which already levy a property gains tax.

1.1 million profit in Zurich - 1.9 million in Zug

A recent analysis shows the extent to which profits from the sale of properties have exploded. The cantons are collecting more and more - although there is still room for improvement in many places, reports the Tages Anzeiger newspaper.

In the canton of Zurich, a typical single-family home in the middle segment cost around 810,000 francs in 1995. Today it is 1.9 million francs - including depreciation. This results in an average net profit of 1.1 million francs.

In the canton of Zug, the increase in value even amounts to 1.9 million francs. Across Switzerland, the profit after 30 years of holding is 570,000 francs - this corresponds to a return of 90 percent. The figures are based on data from the real estate consultancy Fahrländer Partner.

It gets even more spectacular when you look at the equity. This is because most owners finance their property to a large extent with mortgages. Donato Scognamiglio, Professor of Real Estate Economics at the University of Bern, says: "Anyone who sells their home after 30 years could multiply their equity thanks to this leverage effect."

Tax often lower than expected

Many sellers are amazed at tax bills of several hundred thousand francs. But in percentage terms, the taxes are often moderate - especially if the property has been owned for a long time.

A study by Raiffeisenbank assumes the following scenario: An owner sells after 30 years with an added value of CHF 660,000. In Geneva, only 2 percent tax is payable on this. In five other cantons, the maximum is 5 percent.

The average property gains tax in Switzerland is 12.6 percent over a 30-year ownership period. In Zurich it is 20 percent, in St. Gallen the highest at 25.7 percent. Even there, according to Raiffeisen, a net profit of around half a million francs remains after deduction of the tax.

Higher taxes apply for short holding periods - to curb speculation.

A goldmine for cantons

For cantons and municipalities, these profits have long since become a source of bubbling income. "Real estate prices have risen sharply in the last 20 years. As a result, property gains tax has become an important and very lucrative source of income for cantons and municipalities," says Raiffeisen chief economist Fredy Hasenmaile.

Depending on the canton, these taxes account for up to 12 percent of total tax revenue. "In view of the high profits and the rather moderate cantonal tax rates, an additional federal property gains tax would be a possible option," says Hasenmaile.

One billion for the federal government?

A group of experts appointed by the Federal Council estimates that a property gains tax at federal level would generate around one billion francs a year. Independent economists consider this to be more sensible than higher value-added taxes, which could make life more expensive and slow down the economy.

Property gains taxes, on the other hand, would hardly have any negative economic side effects. "Here, profits would be skimmed off that were generated without the owner's own contribution," says Isabel Martinez from the ETH's Economic Research Center. Real estate often becomes more expensive because the state expands schools or improves railroad lines. "With a property gains tax, part of this would flow back to the public sector."

Now the politicians are speaking out

Officially, many middle-class politicians continue to reject tax increases - partly in order to put pressure on austerity measures. But behind the scenes, there is a growing realization that it is unlikely to work without additional revenue.

Erich Ettlin (center), a political heavyweight from the Council of States, is now speaking out: "I also think the federal government should make savings instead of raising taxes - but parliament is finding it very difficult to make the necessary cuts." Each party blocks where its own clientele is affected, according to the "Tages Anzeiger".

Financing the 13th AHV pension and military spending is therefore "hardly possible without new revenue". A property gains tax at federal level could be examined "because, unlike many other taxes, it would hardly create any economic disincentives."

However, one problem remains: the federal government could "get in the way of the cantons".

Pressure from the left

One thing is already clear: pressure will increase from the left. SP Co-President Cédric Wermuth is calling for a concept for such a tax to be drawn up. And SP National Councillor Ursula Zybach, President of the Casafair association, is calling for the same in a motion.

Her reasoning is clear: "The enormous increases in the value of real estate are not the merit of the owners, but of society as a whole - it is therefore only fair if part of the profits flow back to the general public."

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