Switzerland Votes on Nationwide Minimum Tax Rate for Top Earners, Wealthy

Swiss voters will decide this weekend whether to increase taxes for the nation’s top earners, risking the country’s reputation as a low-tax refuge for well-paid and wealthy residents.

Voters will decide on Nov. 28 whether to enact minimum taxes on income and wealth. The initiative was started by the Social Democratic Party. A poll conducted among 1,207 people between Nov. 8 and Nov. 13 by gfs.bern showed that 46 percent favor the proposal, while 39 percent said they oppose it. The poll had a margin of error of 2.9 percentage points.

In Switzerland, 26 cantons are competing for the wealthy by offering low income-tax rates. This puts middle-income families at a disadvantage as they aren’t offered those favorable rates, the Social Democrats say. In addition, the country’s densely populated cantons such as Zurich can’t afford to offer low tax rates as they bear higher costs for infrastructure than smaller cantons such as Schwyz or Obwalden.

“The measure would curb this detrimental tax competition,” the Social Democrats said on the campaign’s website. The current system “jeopardizes national solidarity and only has a few winners: the rip-off artists and the super- rich who can relocate to where they get the best offers at any time.”

The Alpine country’s reputation as a low-tax haven has attracted foreigners like Ingvar Kamprad, the Swedish founder of Ikea AB furniture stores, and members of the Brenninkmeijer family who owns retailer C&A Group.

Tax Burden

Residents would have to pay at least 22 percent tax on annual taxable income higher than 250,000 francs ($249,000), according to the proposal. In municipalities in 15 cantons, this so-called marginal tax rate on income is lower than the 22 percent envisaged by the Social Democrats.

The tax burden of a resident in Freienbach in the Swiss canton Schwyz with an annual taxable income of 500,000 francs would increase by 36,111 francs to 130,675 francs if Swiss voters approved the initiative, according to calculations by Stefan Hostettler, a tax expert with the Social Democrats.

About 1 percent of all taxpayers had an annual taxable income of more than 250,000 francs in 2007, according to the Swiss Federal Tax Authorities. A taxable income of 250,000 francs corresponds to a gross income of about 320,000 francs, Andrea Sprecher, a member of the Social Democrats told Bloomberg News by telephone.

The campaign also wants to impose a marginal tax rate of at least 0.5 percent on wealth higher than 2 million Swiss francs.

Cantons’ Autonomy

Switzerland’s government and parliament have rejected the initiative, saying it interferes with the cantons’ tax-autonomy regulations. The changes may also harm the country’s attractiveness, the government, led by President Doris Leuthard, said before the vote.

Swiss newspaper SonntagsZeitung reported on Nov. 14 that executives were threatening to leave the country if voters approved the new tax system. If the proposal passes, the measure would automatically become part of the country’s tax code.

In a separate decision, voters will decide on a proposal by the Swiss People’s Party on whether to automatically expel foreigners who have committed a crime. According to the campaigners, the automatic expulsion would take place in cases where foreigners have been convicted of murder, rape, robbery, human trafficking, drug dealing or burglary.

The initiative aims to limit the discretion Swiss cantons have in deciding whether to expel foreigners convicted of one of these crimes.

Switzerland’s government and parliament also rejected this proposal, saying it is against international law. The parliament submitted a counterproposal saying criminals should be expelled when the usual sentence is one year or more or if they had been sentenced previously to a minimum of two years.

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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