Switzerland Needs to Rebalance Taxes

January 24, 2012 Taxation in Switzerland

Changes in Swiss TaxationBERN – Switzerland needs to shift its fiscal focus away from personal income taxes towards taxes on consumption and real estate.

On January 24th the Organization for Economic Cooperation and Development released the latest annual Economic Survey of Switzerland, containing a summary of the country’s current economic position and recommendations for future fiscal policies.

According to the authors of the report, Switzerland has experienced healthy and balanced economic growth in the last few years, despite seeing a strong appreciation of the Swiss franc. The report suggested several measures to ensure that the country continues to see sustainable and balanced economic expansion.

Amongst the suggestions, the OECD pointed to several tax measures that would be beneficial to Switzerland, and recommended the government to look at rebalancing the current tax system to shift tax burdens away from personal incomes to consumption taxes. The government should also consider raising the Value Added Tax (VAT) rate, and expanding the system to cover more transaction and items. VAT should also be levied on financial services, to equalize the tax treatment of the financial sector.

The central government and local governments in Switzerland also need to investigate the feasibility of lowering personal income taxes. The OECD report suggested that central government should remove the restrictions its places on local authorities in setting real estate taxes. The newly raised revenues from real estate taxes could be used to substitute the revenues lost by cutting personal income tax rates. As an additional benefit, taxing real estate should be less harmful to economic activity than taxing incomes, and would generate a steadier income for local governments across Switzerland.

Photo by [Jim]