Committee reaches compromise on fund to finance the army

The Finance Committee of the Council of States has revised the Federal Council's proposal to finance the army and reached an agreement. Committee president Eva Herzog described it as a “classico compromesso” (classic compromise), reached after concessions from all sides.

The overall structure matches the one proposed by the government. A dedicated fund for the army is planned, authorised to take on debt to bring forward investments starting in 2027. The fund would be financed by the one billion francs in surplus expected for 2026, by 500 million francs a year from unused credits, and by a 0.2 percentage point increase in VAT, which would bring in a further 800 million francs.

What happens if the VAT increase fails

The most sensitive point concerns the VAT increase itself. If the change were to stall in parliament or be rejected in a popular vote, the fund would remain active regardless: it would then be up to parliament to find alternative sources of financing. Herzog warns that in that scenario, opinions would diverge again between those who want to draw on the ordinary budget through savings plans and those willing to accept higher debt.

Not all committee members share this approach. Council of States member Benjamin Mühlemann (FDP/GL) criticises the financing method: using unused credits would delay repayment of debt taken on during the pandemic, and the higher VAT “togliamo soldi ai cittadini” (takes money away from citizens). Benedikt Würth (Centre/SG) takes the opposite view, calling the compromise “un progresso significativo sotto il profilo della politica di sicurezza” (a significant step forward in security policy terms), financially sustainable and constitutional.

The committee approved the text by a comfortable majority. The bill now goes to parliament: the Council of States will vote on it in September, the National Council in December. If the project survives the parliamentary process, the army will be able to bring forward major payments in an increasingly tight arms market.

Financing through debt and new tax revenue raises questions about future room for manoeuvre in the federal budget, particularly if the VAT increase fails to materialise and parliament has to find alternative funding quickly.