Switzerland’s Move to Address “Marriage Penalty”
At a recent press conference, the Swiss Federal Council revealed a comprehensive plan to reform the country’s tax system. The primary goal of this initiative is to eliminate the widely criticized “marriage penalty” by introducing a significant change—allowing married couples to file their tax returns separately.
Understanding the “Marriage Penalty” in Switzerland
Under the current tax regulations, married individuals in Switzerland are obligated to file joint tax returns with their spouses. This joint filing combines the incomes of both spouses when calculating income tax. Critics argue that this system results in a disproportionate tax burden for working married couples compared to unmarried counterparts. The outdated assumption that only one partner will work exacerbates the issue, as limited tax deductions for married couples fail to adequately offset the higher tax burden.
Swiss Government’s Initiative to Eliminate the “Marriage Penalty”
In a statement issued on February 21, the Federal Council outlined its plan to abolish jointly filed tax returns, effectively eliminating the “marriage penalty.” This proposal serves as a counter-response to the Tax Justice Initiative, a referendum with a similar objective.
Under the proposed changes, married couples would file their taxes individually, unlocking the advantage of lower income tax rates. The reform also includes the equitable division of income and assets for married couples, aligning with the tax treatment of unmarried couples. Furthermore, specific tax breaks, such as the child deduction, are set to be increased.
Adjustments to Federal Income Tax Rates
Simultaneously, the Federal Council announced intentions to modify federal income tax rates. Key adjustments involve an increase in the basic tax allowance and a reduction in the income threshold for the top federal tax rate, currently set at 11.5 percent.
Swiss Government’s Aspiration for Employment Boost
During the press conference on February 21, Finance Minister Karin Keller-Sutter expressed optimism that the proposed tax reform would stimulate married individuals, particularly women, to (re-)enter the workforce. The expectation is that this measure will help meet the high demand for workers in Switzerland. The Federal Council emphasized in its statement that the plan “will reduce the tax burden for a clear majority of taxpayers,” especially for married couples with similar salaries.
Positive Reception and Support from Parliament
The announcement received positive feedback from segments of the parliament, including FDP, The Liberals, Greens, Green Liberals, and the Social Democratic parties. FDP National Councillor Susanne Vincenz-Stauffacher conveyed her delight at the plans, expressing anticipation for further discussions on the details.
Challenges and Hurdles for Swiss Tax Reform
However, despite support from both parliament and the Federal Council, Finance Minister Keller-Sutter acknowledged the formidable challenges ahead, describing the endeavor as a “bureaucratic monster.” Successful implementation requires modifications to tax laws at federal, cantonal, and local levels.
Potential obstacles include opposition from the Swiss People’s Party and the Centre. The plan may face hurdles in a referendum or parliamentary defeat. Minister Keller-Sutter disclosed that, following consultation, only five out of 26 Swiss cantons favored the change, primarily due to concerns about the estimated annual cost of 1 billion francs in lost tax revenue. The cantons have requested a 10-year timeline for the proposed change, suggesting that even with swift legislative action, it may not come into effect before 2034, potentially extending to 2035 or 2036.
