Has Lugano property taxes

When it comes to general wealth tax, Switzerland is a special case

The general wealth tax appears to be being phased out internationally. Only three industrialized countries still know this type of tax. It is of greater importance in Switzerland alone.

Switzerland has an international reputation for having relatively moderate tax burdens. But when it comes to wealth taxation, Switzerland is no paradise. A very wealthy German entrepreneur who lives in the canton of Zurich recently described his point of view with two bare figures: The burden of income taxes and wealth taxes together account for almost 50 percent of his income, whereas in Germany it is only 26 percent because Germany has no wealth tax . That is why he is considering returning to Germany. A few years ago, the consulting firm KPMG calculated that Facebook founder Mark Zuckerberg would have had to pay over CHF 250 million in wealth tax before his company went public and that his company would therefore have probably failed in Zurich.

Indeed, Switzerland stands out when it comes to wealth taxes. According to a report by the OECD, the club of around 35 relatively rich countries, only 4 OECD countries had a general wealth tax in 2017. In 1990 there were 12. In addition to Switzerland, the small remaining group also included Spain, France and Norway, but measured in terms of wealth tax income compared to total tax income and compared to economic output, wealth tax in Switzerland was around three to ten times as important as in the other three countries. In 2018, France also dropped out of the rest of the group, as the country has only partially levied wealth tax since then (namely on real estate).

7 billion a year

In Switzerland, wealth tax is regulated by the cantons. In 2016, the cantons and communes received around 7 billion francs from wealth tax for natural persons. This amount was as high as 13 percent of income taxes for the federal government, cantons and municipalities. In most cantons, the tax burden on assets over 200,000 francs is between 0.2 percent and 1 percent. With investment income of 2 percent, for example, there is a burden of 10 to 50 percent of the income on top of income taxes.

There are three main arguments that can be used to justify wealth tax. On the one hand, in combination with income tax, it enables the implementation of the politically widely accepted principle of taxation based on economic performance - because this performance includes not only income, but also assets. Second, wealth tax can dampen extreme inequalities more than income tax, since wealth is typically much more unevenly distributed than income. And thirdly, the wealth tax can be a pragmatic substitute for the more administratively complicated capital gains tax.

But there are also some objections to the wealth tax. It punishes saving and investing. In fact, it causes multiple taxation of certain income - first as income, then annually as assets. It also applies if the taxpayer suffers a loss on his or her property. It can hinder growth, especially for smaller companies. And in most of the countries that knew or still know a general wealth tax, there was only relatively little income for the tax authorities.

Widespread property taxes

However, all of this does not mean that most countries would completely forego wealth taxation. Virtually all OECD countries have taxation on real estate. In Switzerland, a property tax is added to the general wealth tax in various cantons and municipalities; A total of around 1.2 billion Swiss francs flowed from such property taxes in 2016. Many countries also have taxes on wealth transactions - namely on inheritances and gifts. If you summarize the fiscal income from general wealth tax, property taxes, inheritance / gift taxes and other wealth transaction taxes, Switzerland is close to the OECD average with just under 2 percent of gross domestic product.

In contrast to Switzerland, many OECD countries have a capital gains tax on movable private assets such as stocks and bonds. From the point of view of tax logic, an income tax also includes a capital gains tax (with loss allowance). This would eliminate problems of differentiating between taxable and tax-free investment income; corresponding evasive maneuvers would become obsolete.

Apart from that, the wealth tax has a similar effect to a capital gains tax, which taxes a "standard profit" instead of the specific capital gain. To illustrate this, let us assume a capital gains tax rate of 20 percent and a wealth tax of 0.5 percent. A wealth tax of 5 francs would apply for every 1,000 francs of assets. In principle, a capital gains tax would have the same effect if the capital gain was 25 francs per year - which would correspond to an assumed return of 2.5 percent. The introduction of a capital gains tax is repeatedly suggested in Switzerland. Anyone who wants such a tax would, intentionally or unintentionally, also make wealth tax available.