Swiss senators propose smaller VAT rise to finance army rearmament

The Senate committee wants to replace a 0.5 percentage point VAT rise with 0.2 percentage points. The proposal puts the financing of Switzerland’s military rearmament programme back at the centre of parliamentary negotiations, only weeks after the government presented its own model.

The Finance Committee of the Council of States, Switzerland’s upper house, approved the alternative plan on Tuesday, according to Parliamentary Services. The committee would combine the smaller VAT increase with money left unspent in existing budgets. It also wants the rearmament fund to operate for longer.

The decision matters because the armed forces’ planned investments require a financing mechanism that can survive parliamentary scrutiny and, potentially, a nationwide vote. The government’s proposal had linked the fund’s legislation to the mandatory referendum required for the VAT increase. The committee now wants to separate those elements.

The recommendation remains an intermediate parliamentary position. The Security Policy Committee, which is leading the work on the army proposal, still has to examine the changes. Parliament must then settle the financing model, the fund’s legal structure and the relationship between defence spending and the federal budget.

The committee’s VAT proposal is 0.3 percentage points below the government’s plan. That difference would reduce the new tax burden on households and businesses compared with the Federal Council’s model, while leaving the rearmament programme dependent on additional sources of money.

The committee has not published a total revenue estimate in the material available for this report. The proposed model therefore cannot be assessed from the VAT rate alone. Its second pillar is the transfer of unspent budget allocations to the rearmament fund. The value and timing of those transfers will determine how much financing the army programme can actually receive.

Using unspent allocations would also connect the fund to annual budget management. Money not used in one part of the federal budget could support defence investments, subject to the legal rules Parliament adopts. That approach could reduce the scale of the tax increase, but it may create competition with other public priorities when departments cannot carry forward or redirect funds freely.

The committee’s statement gives no breakdown by canton, household or business sector. Any estimate of the effect on individual taxpayers would require the final VAT design, the taxable base and the duration of the increase.

The proposed fund would last longer, extending the political and financial life of the rearmament programme. The source does not state how many additional years the committee has in mind, so the duration remains to be determined through the legislative process.

The committee also wants to remove the provision that ties the fund’s legislation to the mandatory referendum on the VAT increase. This would change how the two parts of the package move through Switzerland’s direct democratic system. The VAT increase would remain subject to the rules governing a constitutional tax change, while the fund’s legal basis would follow a separate route under the committee’s proposal.

That separation could give Parliament more flexibility when it debates military investments. It could also produce a more complex political process, since voters, Parliament and the Federal Council would assess related elements through different procedures. The exact legal consequences will depend on the bill adopted by the responsible committees and the Federal Assembly.

The change comes as the Federal Council seeks to refocus the armed forces on defence capabilities, including protection against hybrid threats and remote attacks. The financing dispute will help determine how quickly those priorities can move from policy statements to procurement and capability decisions.

The next decision lies with the Security Policy Committee, not the Finance Committee alone. That committee is leading Parliament’s work on the army proposal and is expected to discuss the alternative financing arrangements shortly. Its response will show whether the lower tax increase can attract support beyond the committee that drafted it.

Opposition to the government’s original model had already emerged during the consultation process. The latest recommendation formalises that resistance by changing three elements at once: the VAT rate, the source of additional money and the legal link between the fund and the referendum. Each change raises a separate question for the Federal Assembly.

Parliament will need to establish how unspent allocations are identified, when they can be transferred and whether those resources are reliable enough for long-term military planning. It must also decide how the fund’s extended duration fits within Switzerland’s debt and budget rules. The source provides no final spending total or procurement schedule, so the committee’s proposal does not yet reveal which projects would receive priority.

The debate will continue to test the political support for stronger defence capabilities while limiting pressure on public finances. Until the committees and both chambers reach an agreement, the government’s 0.5 percentage point model remains only one option among several.