Swiss Parliament Approves Measures To Counter Tax Bracket Creep

by Ulrika Lomas, Tax-News.com, Brussels

19 March 2004

Switzerland's parliament has decided that the government's planned tax reforms, due to go to a nationwide vote in May, should include provisions compensating for "bracket creep".

Bracket creep occurs when salary increases related to inflation force workers into higher tax brackets, and under Swiss law, the government is required to address the situation when the accumulated inflation rate breaches the 7% mark.

However, compensating for this phenomenon is likely to leave the Swiss authorities out of pocket according to the Swissinfo news service, which revealed that the last time an adjustment of this nature was made in 1996, it cost the government around SFr650 million in lost revenue.

Political analyst Georg Lutz confirmed the likely impact on government finances, explaining to the news service that:

"If the readjustment is included it makes the impact of tax reform even greater [for the cantons and the federal government]. Both central government and the cantons will lose even more revenue on top of the SFr2.6 billion [that will be lost as a result of the other reforms]."

However, he went on to add that:

"Not including it would mean you start counting inflation from zero again and that would minimise the effect of the tax reform.”

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