Switzerland takes crucial step toward scrapping joint tax filings for married couples

This week, lawmakers took yet another crucial step towards eliminating the so-called “marriage penalty” imposed on couples when paying Swiss taxes. Here’s what you need to know about the plan for individual taxation for all, and how it would impact you.

Married couples in Switzerland face penalty when filing taxes

As it stands, those who are married or in a registered partnership must file a joint tax return in Switzerland. This means that if both spouses have jobs, their incomes are combined when calculating how much income tax to pay.

Critics argue that this system creates a “marriage penalty” in Swiss taxes, as working married couples end up paying more than couples who are not married, as they can file individually. Though some deductions and credits do exist for spouses, they nowhere near compensate for the higher tax burden.

Interestingly, the movement to scrap the current system has support from across the political spectrum. For some, the rules resemble an archaic view that assumes that only one partner in a marriage will work, while for others, the system puts couples off getting married and incentivises married couples to work less. 

What you need to know about the Tax Justice Initiative

So, what is being done to change the system? Most discussions focus on the Tax Justice Initiative, a referendum that was submitted by FDP Women, and the various counterproposals that surround it.

Under the referendum, every adult in Switzerland would be required to submit a local/cantonal and federal tax return, whether they are married or not. This proposal was narrowly approved by the National Council at a vote on May 7.

However, the most support has been found in a counter-proposal to the referendum, which was also approved by lawmakers on May 7. This plan would be enacted if the Tax Justice Initiative is rejected at the ballot box, or its supporters withdraw their referendum.

How will taxes in Switzerland change after the reforms?

In this plan, individual taxation will be gradually applied at the local, cantonal and national level. Any tax deductions related to children will be split equally between married parents, and the child allowance tax deduction will be increased from 6.700 to 12.000 francs a year. To make sure the plan is not too costly, the government would be allowed to adjust federal tax rates.

Will the reforms mean I pay less tax?

According to Federal Council estimates, this counterproposal would provide 600 million francs in relief for Swiss taxpayers, with lower and some middle-income earners continuing to pay little to no federal taxes. 

The government notes that a majority of the population of Switzerland will see lower taxes thanks to the proposal, with married couples with similar incomes and pensioners seeing the biggest benefits. By contrast, a third of taxpayers will see no change, and around 14 percent of the population will pay more tax, mostly married couples with unbalanced incomes.

The government also estimates that the idea could lead to an increase in the workforce, as married people would be incentivised to work longer. They estimate that the economic boost would be the equivalent of adding between 40 and 60.000 full-time employees to the workforce.

What are the arguments against the reforms?

Though the idea of scrapping individual taxation is approved by all parties, the devil is in the details. With the current scheme set to cost 600 million francs a year, opponents fear the plan would lead to budget cuts, at least in the short term.

The current compromise is also vehemently opposed by the Swiss People’s Party (SVP) and the Centre, who reject it on the grounds that the plan would hurt the finances of those pursuing “traditional” family models where only one spouse works. 

Individual taxation for all: Where do we go from here?

As it stands, the Council of States will decide on whether to move forward with the proposals this summer. However, a public vote on the plans is inevitable: if the proposals pass parliament, the SVP and Centre have promised to oppose them with a referendum. If the plans are rejected by lawmakers, FDP Women have promised that the Tax Justice Initiative will be sent to the ballot box.