The Swiss government wants to reduce their expenses (or increasing income) and today an expert committee proposed options on where money could be saved (for the state). Since part of the suggestions play a role for many Mustachians, I wanted to bring it up here. More info can be found e.g. in this Tagesanzeiger article (in German).
Note that all of the points in this article are so far only suggestions, and future will tell what will be actually implemented.
Kann es sein, dass wir alle bald mehr Bundessteuern bezahlen mĂŒssen?
Nicht, wenn es nach der Expertengruppe geht. Oder jedenfalls nicht direkt. Im Vordergrund fĂŒr das Szenario «mehr Einnahmen» stehen andere Optionen: SteuervergĂŒnstigungen streichen, etwa fĂŒr KapitalbezĂŒge bei der Altersvorsorge aus der zweiten und dritten SĂ€ule. Bei der Mehrwertsteuer liesse sich ein einheitlicher Satz von 6,8 Prozent einfĂŒhren â das heisst, es gĂ€be etwa fĂŒr die Hotellerie keine VergĂŒnstigungen mehr. Ein weiterer Vorschlag ist eine GrundstĂŒckgewinnsteuer auf nationaler Ebene. Diese neue Steuer war innerhalb der Expertengruppe umstritten. Insgesamt könnten mit diesen Massnahmen 2,5 bis 3,5 Milliarden Franken pro Jahr mehr eingenommen werden.
The part where they say they donât plan tax increases but only reducing tax reliefs is an interesting spin.
I read this in the NZZ this morning (before the expert committee presented their proposals).
The excerpt that resonated best with me â cynical old fart that I am â are the final two paragraphs of the article:
Ob sich die heterogene Gruppe Gaillard im geschĂŒtzten Rahmen auf irgendeine Art von finanzpolitischer HomogenitĂ€t einigen konnte? Und wenn ja, was wird daraus im ungeschĂŒtzten Rahmen von Bundesbern?
Ein alter Haudegen der Finanzpolitik formuliert es so: «Sobald es eine Idee gibt, wo gespart werden kann, wird sie verpolitisiert, die Lobbys eilen herbei, und wenn â schon das ein Wunder! â ein Kompromiss gemacht werden kann, so wird er hinterher verwĂ€ssert. Das ist die RealitĂ€t.»
Personally, I expect a ton of political discussions on the proposals but in the end just about zero reduction in spending â at best, theyâll save about as much as the task force will charge (or has already cost) for putting together these proposals âŠ
Color me cynical but I expect reduced federal spending due to transfer of tasks/financing to the cantons or other actors.
What I understand from the Tagesanzeigerâs article is not necessarily more direct federal taxes but more taxes anyway (supression of tax deductions means more taxes and VAT, as the name implies, is a tax too).
Iâm curious to see if theyâll manage to get good ideas regarding alternative ways of taxation and if theyâll garner significant support.
Interesting and worrying: The expert group assessed that the preferential tax treatment of pillar 2/3 capital payouts is neither justified from a tax system perspective nor proportionate as a fiscal measure. This is they highest category of what they recommend to change!
What they are proposing is not to completely abandon the preferential tax treatment (of 1/5 of the usual rate on state level and similarly low levels of cantonal taxes), but to harmonize it with the taxation of somebody who choses the annual rent payout. They donât explain how exactly, but I imagine something like this (as an example for Zug):
Today:
500â000 CHF capital payout is taxed at ca. 28â900 CHF (or ca. 5.8%, which is only about 27% of the over 100â000 CHF of taxes you would pay for an ordinary taxable income of that amount)
500â000 CHF at the current conversion rate of 6.8 (which of course you likely donât actually get for the full amount, only for the mandatory part) turns into an annual pension of 34â000 CHF, which together with a maximum AHV pension of 28â440 turns into a taxable income of 62â440 CHF for which you pay 4â413 CHF of taxes (or ca. 7.1%)
With their recommendation:
500â000 CHF capital payout for taxation is taxed at a (fictious) 7.1% instead of the current 5.8%.
The difference might seem low, but that is because it is Zug based which taxes low income very low. I did the same math for a 1â000â000 CHF capital payout and the tax rate increases from 6.3% to 15.2% (i.e. nearly 90â000 CHF of additional taxes). In cantons with high taxation of lower incomes the increase might be even steeper.
Die Expertengruppe hat verschiedene Varianten geprĂŒft und schlĂ€gt vor, den Steuersatz fĂŒr den Kapitalbezug auf Bundesebene so festzulegen, dass (möglichst) die gleiche Steuerbelastung wie beim Rentenbezug resultiert. Die KapitalbezĂŒge werden dazu auf eine entsprechende Jahresrente umgerechnet und zum ĂŒbrigen Einkommen addiert. Daraus ergibt sich der dem Einkommen entsprechende Steuersatz, mit dem die KapitalbezĂŒge besteuert werden.
PS: They only talk about capital payouts when retiring at at retirement age. It is not clear what would apply in case of an early WEF withdrawal; certainly that couldnât be taxed together with the usual working income.
PPS: They also assessed all other preferential tax treatments (and I must say I mostly agree), and they also flag the non-taxation of capital gains, which means they think it should be further investigated and potentially changed (while abstaining from outright recommending that).
I would say there is a limit to what kind of tax they can apply at time of lump sum withdrawal.
It is a defacto a combination of following
capital gains tax
Deferred tax on the tax saved at time of contribution
By increasing lumpsum withdrawal tax , they would
make 3a less attractive vs taxable accounts
make 2nd pillar less relevant because the interest rates in pension funds are quite low already. Then the question would be what is the point of pushing people to contribute into 2nd pillar if itâs returns vs. Taxable account will become miniscule.
For example 100 CHF gaining 1.5% interest in 2nd pillar would result to 130 CHF after 25 years with 10% lumpsum tax. It would be 116 CHF with 20% lumpsum tax. This is effective return of 0.6%
The same 100 CHF after paying marginal tax of 35% and getting invested in capital markets with 5% return would become 220 CHF and with 3.5% would become 153 CHF.
The objective of 2nd pillar is ideally to help people save money for their retirement so that state doesnât have obligations of social welfare. But if they can save in much better way outside the pension system then pension system is going to become useless.
However, a part of the concept of the second pillar is that the employer contributes to the savings too. Doubling the original capital, that would be 232 CHF vs 220 CHF (5% returns) or 153 CHF (3.5% returns).
That original 100% boost is hard to compete with (but comes at a high cost for employers so can be criticized if all it allows is for savings in the 2nd pillar to match what is available in taxable).
I wouldnât consider employer contribution as âfree moneyâ. When considering employment people need to compare the total compensation
I always look at pension plans to compare compensation packages
Total compensation = base salary + bonus + stocks + employer contribution to pension fund
If there was no regulation. Employer can simply increase base salary and reduce their contribution to pension to zero and employee will be much better off.
If pension system becomes irrelevant in terms of saving money. Then employer with higher base salary and lower contribution will be better for employees.
I think government plans should always be based on sound financial decisions and not forcing people to have mediocre returns. At least in SwitzerLand.
The level of taxation on ordinary people is just ridiculous in most developed countries. While CH may be relatively good, the direction is worrying. Liberals lose influence while left ideas gain.
80% of the beaurocrats who never worked a day in their life can be immediately let go in my opinion.
Reduce the ton of rules and regulations who just benefit large corporations, consultants and lawyers. Free the market forces. Tax the very rich, but reduce the burden on ordinary people and small businesses.
These kinds of long-term restricted saving schemes have always been susceptible to legislation change. It is part of the risk. This and the added complexity (including its higher cost) have to be weighted against any benefits. There is a reason some people advise against it and for taking the money out every chance you get.
Also, any significant assets can be converted to a home the second any of this is going to be a reality. Others might have the same idea, though. This might pump up prices.
This would make 3a saving completely useless basically? sure you got some dividend tax savings, but also pay management fees, that almost nullify that and you lock away your money for many years, for a few basis point advantageâŠ.
Iâm probably misunderstanding something here.
E: More glad now that I decided to not pay into 3a at all. It would make even less sense for me then (FI, and need more collateral for margin loan etc.)
This is exactly what it means. 3a is absolutely worthless for us if this gets executed. I will stop putting money into 3a immediatly until this is further clarified.
But you pay that tax break back on the total amount. Nullyfying that advantage. May even be worse, when you have high payout years, and your marginal tax rate could even get higher than during you income yearsâŠ
We donât know what this really means yet, and how likely this is to pass through parliament (which will be a significantly higher hurdle than within the federal council; no chance this passes for 3rd pillar).
See here for my initial analysis: Itâs not clear what it really could mean, and itâs not as bad for everyone as you might think (still very bad for high earners of course).
Also myself need to rethink my end of year plan, which was to buy-in ca. 250k into pillar 2.
Hearing proposal (Vernehmlassung) planned for January 2025, as they said the need to clarify a lot of details and propose the specific measures (while today they only confirm the intentions/broad targets)
Statement (Botschaft) planned ideally for September 2025, but depending on parliamentary discussions likely to take longer.
Enter into force (Inkrafttreten) possible for January 2027, but likely January 2028. Also, the package very likely will be subject to an optional referendum (Fakultatives Referendum), so not unlikely this will come to a vote and not into effect prior to 2029 after vote in 2028 (at the earliest).
So, buying into pillar 2 one big last time now (considering three years of blocking period (Sperrfrist)
Edit: In the Q&A KKS was speaking of a possible vote in 2026, to still uphold the January 2027 deadline for it to enter into force. Highly unrealistic if you ask me, and their own documents indicate 2028 as realistic.
Also, first reactions are unsurprisingly negative by the central and left wing. Positive for this discussion is that FDP, who liked the package in general very much, specifically also criticized the higher taxation in their first reaction. Further grounds to doubt this will get through parliament.
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