Fiscal Cowardice in Bern: The Unfunded Illusion of the Thirteenth Pension

Switzerland frequently relies on its immense wealth to cushion the blow of its own political naivety. The National Council’s latest maneuver regarding the newly minted thirteenth AHV pension perfectly illustrates this habit. Lawmakers have decided to hand out generous new benefits while stubbornly refusing to fully pay for them. By rejecting a modest increase in wage contributions, the parliament has essentially chosen to drain the national pension fund rather than confront voters with the true cost of their social policy. It is a striking display of fiscal cowardice from a country that prides itself on stability and prudent state management.

The mechanics of this half-baked compromise are straightforward, yet deeply flawed. A narrow parliamentary majority agreed to raise the standard value-added tax by 0.4 percentage points, pushing it from 8.1 to 8.5 percent. The special rate for the hotel industry will creep up to 4 percent, while the reduced rate for daily necessities remains untouched. This compromise only materialized because the Green Liberal Party abandoned its previous opposition to an open-ended VAT hike. However, an accompanying proposal to raise wage contributions by a mere 0.2 percentage points was narrowly defeated. Consequently, the approved tax increase will cover barely half the cost of the new pension payouts.

The financial arithmetic is unforgiving. The first round of the thirteenth pension will be disbursed this December, instantly blowing a 4.2 billion franc hole in the budget. Even if voters approve the VAT increase in the scheduled November referendum, corporate price adjustments will delay any actual revenue generation. For two full years, the additional pension will be distributed without a single franc of dedicated funding, draining approximately 9 billion francs from the AHV reserves. A shrinking capital base inevitably generates lower investment returns, creating a vicious cycle that will make future stabilization efforts drastically more expensive.

Federal Councillor Elisabeth Baume-Schneider has conspicuously avoided public comment following the vote, having previously insisted that no alternative strategy was necessary. Her silence is symptomatic of a broader political paralysis within the executive and legislative branches. The left-leaning and centrist parties—the Social Democrats, Greens, the Centre, and the Green Liberals—are expected to back the November referendum out of sheer necessity rather than conviction. Meanwhile, the Swiss People’s Party and the Liberals are preparing to fight the tax hike aggressively. The electorate will soon be asked to approve a tax increase that fails to solve the underlying deficit, exposing a wealthy nation entirely unwilling to practice basic accounting.

Written by Thorben Thiede thorben.thiede@alpineweekly.com