Swiss citizens rejected federal government proposals to overhaul the country’s corporate tax system.
With a majority of more than 59%, in February, the Swiss derailed a long process to abolish ultralow tax rates for multinationals to bring Switzerland in line with other EU and OECD countries.
The Swiss government wants to abolish tax privileges for Swiss-domiciled multinationals—most of whose actual business activities are elsewhere—by 2019. But Swiss voters feared that the end result would be lower taxes for all companies, as competition would grow among cantons to hang on to their well-heeled multinationals.
Middle-income voters feared they would be left to either foot the bill or accept lower standards of publicly funded services, even though it was made clear that a “no” vote could adversely affect the Swiss economy.
“The government and business representatives could not get through with their arguments about jobs and growth, keeping Switzerland a good location for international investment,” says Christian Keuschnigg, professor of public economics at the University of St Gallen in Switzerland.
Instead, he says, voters were persuaded by the “putting local needs first” message of the Swiss Social Democratic Party, which argued that new tax loopholes would be created that benefited only lawyers and accountants, and that across-the-board cuts in corporate taxes would mean, “we all pay with worse services and higher taxes and charges.”
Keuschnigg says the “no” vote could increase uncertainty about the economic outlook: “This comes on top of the overvalued Swiss franc and high wages, which make Switzerland a very expensive country.”
The federal government in Bern must come up with an alternative plan and get it approved by 2019 if Switzerland is not to face possible sanctions from the EU and other trading partners. “There is a very tight timeline to implement a solution,” says Keuschnigg, “especially if it comes to a new vote.”