Swiss Council of States proposes lower VAT hike for defense fund

The Swiss Council of States has proposed a smaller value-added tax (VAT) increase to finance additional armament expenditures for the military. While the Federal Council originally suggested a 0.5 percentage point increase, the Council of States favors a 0.2 percentage point rise. Additionally, the special rate for accommodation services is proposed to increase by 0.1 percentage points.

To supplement the VAT, the Council intends for the proposed armaments fund to be supported by regular financing surpluses from the federal budget, as well as additional deposits from the general federal budget. The fund is envisioned to have a volume of 24 billion Swiss francs and operate from the beginning of 2029 until the end of 2045.

Legislators also seek to decouple the legal basis for the armaments fund from the mandatory public vote regarding the VAT increase. This separation ensures the fund remains intact even if the VAT increase is rejected by voters. Under this proposal, the VAT vote would be postponed to 2028, with the increase taking effect in 2029.