Swiss cabinet trims VAT hike for defence to 0.5 points, extends timeline to 12 years

Federal Council scales back VAT increase

Instead of the 0.8 percentage-point hike floated in January, the government now asks for a 0.5-point increase on the standard rate and 0.3 points on the special hotel rate. The reduced rate for foodstuffs and medicines stays unchanged. The levy would run for 12 years rather than 10. The full proceeds go to armaments.

“I consider this increase a contribution to the security of Switzerland and its population.”

Improved fiscal outlook creates headroom

Finance Minister Karin Keller-Sutter updated budget forecasts showing higher federal revenues. The windfall allows part of the defence push to be financed through the ordinary budget, reducing the VAT demand. A separate, borrowing-enabled armaments fund is also planned to accelerate procurement and smooth payment peaks.

Patriot payments resume, second system in sight

Washington’s decision to prioritise Ukraine deliveries delayed Switzerland’s Patriot order by years and raised costs. The government has lifted a temporary payment freeze to keep the project on track and to avoid jeopardising related F-35 and F/A-18 spare-parts contracts.

“We have no choice, we need more financial resources.”

Simultaneously, the defence ministry is negotiating with suppliers in France, Israel and South Korea for a second long-range ground-to-air system. Initial feedback shows all three meet military requirements; production of missiles and control systems would take place in Switzerland or Europe.

Political wrangling ahead

The original 0.8-point plan drew fierce opposition. Parties left and right called it socially unfair. The new proposal exempts basic goods and aims for a compromise: a very limited VAT increase, possibly further spending cuts, and temporary borrowing for air-defence systems. A centre-right majority in parliament is expected to back the defence minister, but majorities remain razor-thin.

Broader tax pressure

This defence-related hike comes on top of a 0.4-point VAT rise already approved for the 13th AVS pension and a requested prolongation of a 0.1-point rail-infrastructure surcharge. If both are enacted, the standard rate would climb to 9.0 percent, the highest ever. The Council argues the security situation since Russia’s invasion of Ukraine makes the funds indispensable.