The Federal Council does not want a financial market tax

The AHV is popular. The reason is simple: Most people withdraw more money from the social welfare system than they pay in directly or indirectly – and according to the motto “after us the flood” this is largely at the expense of the younger people. The AHV pension promises are currently far from being fully funded.

According to calculations from economists at the University of Freiburg im Breisgau and UBS from September, the AHV, including the agreed 13th month pension, issued bad checks for around 1,300 billion francs. This means that the pension promises exceed future income by this amount. Future coverage gaps are broken down to today’s present value with a real interest rate of 2.1 percent per year.

The federal government provided a different perspective in September with the corrected AHV financial perspectives. According to these estimates, without countermeasures, the AHV will be in the red from 2026 or 2027, and the annual deficit will continue to increase thereafter – to over 3 billion francs from 2031 and over 5 billion from 2035. And in the likely scenario that the voters will also be the middle- If the popular initiative to increase married couple’s pensions is approved, the self-service shops’ annual deficits will increase by a further 3 to 4 billion francs.

Measures are inevitable

The Federal Council wants to partially finance the 13th month pension with an increase in VAT by 0.7 percentage points, but this would not keep the AHV afloat in the long term. Further renovation measures will have to come. In the future, additional taxes or wage deductions are likely to be less unpopular than increasing the retirement age. The main reason: The additional payments for AHV are largely at the expense of younger people, while citizens over the age of 50 have a clear and growing majority at the ballot box.

How about an additional tax on financial market transactions for the AHV? The Council of States demanded answers to the question from the Federal Council in 2022, well before the vote on the 13th AHV pension. Politically, the idea seems attractive: one can give the impression that it only affects the rich and evil (“speculators”), the tax rates are visually low, and warnings about harmful effects on investments seem too abstract to be presented in 20-second messages in front of TV cameras to leave a lasting impression.

But the Federal Council poured cold water on the idea in its report on Wednesday: It clearly rejects financing the AHV through additional taxes on financial market transactions. He raises four main objections.

First: Measured against the principle of taxation based on economic performance, transaction taxes are bad because, unlike income or consumption taxes, they are not based on performance. Second: Financial transaction taxes distort the decision between consumption and savings to the detriment of saving; they can make it more expensive for companies to form capital and thus slow down economic development. Third: The risk of evasive maneuvers is relatively high. And fourth: The potential tax revenue is relatively low.

Various variants of financial market transaction taxes are conceivable and some already exist. These could, for example, be taxes on the issuance of equity or debt capital by companies. Or it could be taxes on trading in securities or foreign exchange. Or it can be taxes on loans and bank deposits.

Stamp duties for 2.3 billion

A loan or bank deposit tax would probably also be unpopular with politicians. The general public would probably feel directly affected here, and the warning about an increase in the price of loans and a deterioration in conditions for bank deposits is likely to have a significant response.

Emissions taxes burden companies and investors, but for the general public this is further away. This became apparent in 2022, when the people clearly rejected the proposed abolition of the emissions tax on companies’ equity – even though this Swiss emissions tax is exotic in international comparison. However, Switzerland abolished the issue tax on debt capital in 2012.

Switzerland currently has three types of stamp duties on financial transactions. In addition to the issue tax of 1 percent on newly created equity capital of legal entities, there is also a tax on stock market transactions with securities (0.15 to 0.3 percent) and a stamp duty on certain insurance premiums. In 2023, the federal government collected around 2.3 billion francs from these stamp duties.

After the global financial crisis of 2008/09, the old idea of ​​a financial transaction tax as an incentive tax to curb “speculation” came back into fashion. In 2010, the EU Commission proposed an EU-wide tax of 0.01 to 0.1 percent on certain transactions, but there was no majority in favor of it.

France and Italy subsequently introduced their own securities transaction tax. But according to the Federal Council’s report, the income from this in both countries is far lower in relation to the size of the national economy than Switzerland’s income from its current stamp duty on stock market transactions. Compared to five other European countries with similar taxes, including Great Britain, income in Switzerland is the highest in relation to the overall economy. The financial center in Switzerland is relatively large.

Unnecessary incentive tax

But does taxing financial transactions lead to more or less price fluctuations? The research overview presented by the Federal Council comes to the conclusion that, according to most studies, taxes on securities transactions increase price fluctuations or do not have a noticeable effect. A justification for an incentive tax cannot be derived from this.

The Federal Council’s skeptical stance on (additional) financial transaction taxes coincides with some economists’ assessment of good and bad taxes. In the event that Parliament still wants additional financial market taxes, the government lists possible starting points: increasing the existing emission tax on equity from 1 to 2 percent (estimated additional revenue of around 200 million francs per year); the reintroduction of the issue tax on bonds (220 million); the doubling of the stamp duty on stock exchange transactions with domestic securities (150 to 200 million); or the introduction of a tax on new mortgages (590 to 730 million).