The Federal Council decided on the key parameters of the reform back in August 2023 based on the results of the consultation process. Accordingly, the indirect counter-proposal provides for all persons to be taxed individually regardless of their marital status. The income and assets of married couples will be divided according to their civil law situation, as is already the case for unmarried couples. The child deduction for direct federal tax will be increased from the current CHF 6,700 to CHF 12,000 and will be split equally between the parents. The direct federal tax rate will also be adjusted: The tax rates for low and middle incomes will be lowered, the basic tax-free allowance will be increased and the amount at which the maximum rate of 11.5 percent is reached will be reduced. These tariff adjustments will enable the reform to provide more even relief across the income brackets.
Financial impact on the Confederation and cantons
The Federal Council estimates that the introduction of individual taxation for direct federal tax would reduce revenue by around CHF 1 billion per year; this estimate relates to the 2024 tax year. The federal government bears around CHF 800 million of this and the cantons around CHF 200 million via the cantonal share of direct federal tax.
As individual taxation is to be implemented at all levels of government, the cantons will also have to adapt their laws. You are free to set your own rates and deductions. For this reason, the federal government cannot make any statements about the financial impact of the reform at cantonal and communal level. In any case, due to the complexity of the system change, a longer implementation horizon must be assumed. The proposal is therefore not included in the financial planning.
Effects on the burden ratios for direct federal tax
According to estimates, the indirect counter-proposal will reduce the tax burden for a clear majority of taxpayers.
Under current law, unmarried persons with children receive a privileged rate. Overall, this group of taxpayers must expect a higher tax burden, although this will be greatly cushioned by the increase in the child deduction and the rate adjustments and compensated on average for low and middle incomes.
For married couples with only one income or a low second income, the reform may lead to additional burdens due to the abolition of the married couple’s rate and the 50/50 split of the child deduction; this particularly affects married couples with children in the middle and higher income brackets.
The greatest relief is for married couples with a more even distribution of income between the spouses. This also affects many retired couples. Thanks to the adjustment of the tariff, most unmarried people without children will also benefit.
Because individual taxation reduces the tax burden on lower second incomes compared to the current taxation of married couples, the system change would create incentives to work and could therefore also lead to better utilization of domestic labor and skilled labor potential.
Counter-proposal to the tax justice initiative
The Federal Act on Individual Taxation is intended to serve as an indirect counter-proposal to the popular initiative “For individual taxation irrespective of marital status” (Tax Fairness Initiative). The Federal Council is thus fulfilling the mandate of Parliament, the majority of whom spoke out in favor of individual taxation as part of the 2019-2023 legislative planning. The Federal Council recommends rejecting the popular initiative because the same objective can be achieved more quickly with the indirect counter-proposal.
Parliament has until March 8, 2025 to make a recommendation to accept or reject the popular initiative. The deadline can be extended by one year if a council has previously passed a resolution on the indirect counter-proposal.
Source: The Federal Council
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