Council of States close to backing VAT hike for the army

In Bern, parliamentary work continues on financing the army's major purchases. The main issue is a VAT increase, which the Council of States is set to discuss based on a proposal from the finance committee. The proposal appears to have the support needed for approval, after weeks of negotiations between the two chambers.

The goal is to raise 24 billion francs, earmarked in particular for strengthening air defence. This is considered a highly vulnerable area: ground-to-air missiles, anti-aircraft systems and drone-defence equipment.

A compromise after two more ambitious proposals

The measure follows a gradual scaling-back of the original demands. Federal Councillor Martin Pfister had initially envisaged a VAT increase of 0.8 percentage points. The proposal was later reduced to 0.5 points over twelve years, with revenue flowing into a special fund that could also have taken on debt to bring purchases forward.

The finance committee ultimately proposed a more modest compromise: an increase of 0.2 percentage points over 18 years. The remaining funding need would be covered by a share of the Confederation's future budget surpluses — the same resources currently earmarked for paying down the debt accumulated during the pandemic.

This mechanism raises some questions. Diverting budget surpluses from Covid debt repayment to army financing means relying on future surpluses that are not yet guaranteed, rather than on stable, predictable tax revenue. It also remains to be seen whether an 18-year horizon, longer than the typical duration of an armament programme, is the most efficient and generationally fair way to finance purchases that remain substantial.

VAT is a federal tax applied to all purchases across the country: an increase, even spread over almost two decades, would also be felt by consumers and businesses in Ticino.