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On Sunday 27 September, the people of Vaud approved the initiative entitled ‘Tax cuts for all restoring purchasing power to the middle class’.
This initiative provides for a 12% reduction in cantonal income and wealth taxes from 2027. This tax cut is across the board, as it applies to the tax burden of every private taxpayer, regardless of their tax rate or tax liability.
According to the initiative committee, the aim of this initiative is to restore purchasing power to the people of Vaud by reducing their tax burden and to make the canton more attractive compared to other cantons in terms of tax bills.
Among the highest tax rates in Switzerland
Indeed, the canton of Vaud is currently among the most expensive cantons for taxable incomes exceeding CHF 100,000 per year, and quite simply the most expensive for those exceeding CHF 1 million. It is also one of the most expensive cantons for wealth tax on taxable assets exceeding CHF 500,000, neck and neck with Neuchâtel, Basel-Stadt and Geneva.
Measures already adopted by the Vaud State Council
Following the tabling of the initiative, the Vaud State Council sought to counter it by introducing measures, approved by the Vaud Grand Council with the same aim of increasing the purchasing power of the people of Vaud. These measures, most of which are already in force, included a gradual reduction in the tax rate, which was due to reach 7 per cent by 2027.
Following the initiative’s acceptance, this reduction will be increased to 12% from 2027 but will not be combined with the 7% reduction already planned. The difference is therefore, an additional 5%. The initiative also concerns the cantonal wealth tax, which was not covered by the State Council’s measures.
In addition to a tax reduction, the State Council had also adopted several relief measures:
- An increase in social security tax deductions (health insurance, childcare costs);
- A reduction in taxation on movable property (wealth);
- An increase in the exemption thresholds for inheritance and gift tax;
- Reform of the tax shield.
Whilst the first three measures are already in force and will remain so, the measure concerning the tax shield was due to come into force provided that the initiative was rejected. The reform was intended to broaden access to the tax shield, particularly for certain business owners receiving qualifying dividends. As the initiative has been accepted, the reform of the tax shield will therefore not come into force.
What are the implications for taxpayers?
The people of Vaud have thus concluded that the efforts made by the State Council to reduce tax and improve certain services or specific aspects of the tax system were insufficient, and that greater efforts were expected.
It remains difficult, however, to assess how the canton and the municipalities will be able to manage the initiative’s clear financial impact on budgets in a broader economic climate that appears to be taking a turn for the worse.
The adjustments to be made to the 2027 budget will therefore need to be monitored closely, particularly considering campaign promises that savings should not be made at the expense of public services but rather through the running of the state. As the 2027 budget is already on the table, it will be interesting to follow the debates.
Finally, it should also be borne in mind that the tax scales, if not the entire tax system will need to be completely overhauled in the coming years in connection with the abolition of joint taxation for married couples. The canton of Vaud’s position in the inter-cantonal tax race could therefore be (re)played out at that time.
