Value-Added Tax Will Be Increased for the 13th AHV Pension

The two chambers had long debated whether only the value-added tax or both the value-added tax and payroll deductions should be used to finance the “thirteenth” AHV pension. On Friday, however, both chambers reaffirmed their approval of the compromise proposal from the Conciliation Conference.

The National Council did so on Friday by a vote of 108 to 85, with six abstentions, while the Council of States approved it by a vote of 28 to 13, with three abstentions. The National Council had originally wanted to temporarily increase the value-added tax, while the Council of States had wanted to increase payroll deductions as well to fund the 13th AHV pension.

Reduced VAT Rate Remains

With Parliament’s approval, the standard VAT rate will increase by 0.4 percentage points starting in 2028, and the special rate for the hotel industry will rise by 0.2 percentage points. The reduced rate for everyday necessities, such as food and medicine, remains unchanged. As a result, the AHV will receive less money than the additional cost of the 13th pension.

However, the VAT increase is not yet a done deal. Because the Constitution must be amended to implement it, the people and the cantons must approve it at the ballot box. The vote could take place before the end of the year, as Finance Minister Karin Keller-Sutter recently stated in the Council of States.

The 13th AHV pension will be paid out for the first time to all retirees at the end of the year—that much is certain. This will require 4.2 billion francs in this first year. By 2030, the cost is expected to be around 4.5 billion francs, and by 2040, 5.4 billion francs. In March 2024, 58 percent of voters and 16 of the 26 cantons approved the “thirteenth pension” at the ballot box.

However, neither higher payroll contributions to the AHV nor a value-added tax increase are off the table. The Federal Council has included a scenario in its “AHV 2030” reform proposal in case funding proves insufficient: It includes a combined increase in value-added tax and payroll contributions, as well as an option involving only a higher value-added tax.

Social partners not satisfied

The social partners had criticized the decision to raise the value-added tax for the AHV after the bill was finalized. However, their reasons for the criticism differed.

The Employers’ Association pointed out that a permanent increase in the value-added tax would have undesirable economic effects. The Employers’ Association, the Trade Association, and the business umbrella organization Economiesuisse would have supported a temporary increase in the value-added tax—to create room for long-term reforms.

In contrast, the umbrella organization for employees, Travailsuisse, wrote that with this decision, the majority of Parliament was accepting a deterioration in AHV finances, even though a sufficient solution had been on the table.