On November 29, 2026, Swiss voters will decide in a referendum whether to raise VAT to help finance the 13th pension payment under the Old-Age and Survivors’ Insurance (AHV) system. Both the Federal Council and Parliament recommend approval. Previously, on August 12, 2026, the Federal Council proposed a temporary VAT increase to finance priority defence expenditure. This measure would take effect in 2028 and remain in force for 12 years.
Key Changes to VAT Rates
The Swiss Parliament has decided to finance part of the AHV pension payment through a VAT increase, while keeping the reduced rate unchanged. To finance the payment, the standard VAT rate could rise from 8.1% to 8.5%, and the special rate for hotel accommodation would increase from 3.8% to 4.0%. However, the reduced rate of 2.6%, which applies to essential goods and services such as food, medicines, newspapers, books and menstrual hygiene products, will remain unchanged.
The VAT increase is expected to generate approximately CHF 1.5 billion in additional annual revenue for the AHV pension system. This would help reduce the projected deficit in 2035 from CHF 5 billion to around CHF 3 billion. It would also strengthen the AHV's financial reserves, with the fund balance expected to reach approximately 70% of annual expenditure in 2035, compared with an estimated 50% without the increase.
Both the Federal Council and Parliament consider partially financing the AHV pension payment through VAT a balanced approach because both working individuals and pensioners contribute to the system's funding. The reduced VAT rate would remain unchanged to limit the impact on lower- and middle-income households, which spend a larger proportion of their income on essential goods.
However, a parliamentary minority opposes the proposal, arguing that higher VAT would reduce purchasing power. They believe the additional costs of the AHV pension payment should instead be addressed through the next pension reform, potentially including structural measures such as raising the retirement age.
Notably, the Parliament approved an extension of the special VAT rate for accommodation services on October 2, 2026. The special rate is 3.8% and was scheduled to expire at the end of 2027. The extension runs until December 31, 2031. So, the only question now is whether the applicable rate will remain 3.8% or whether it will increase to 4.0%.
Conclusion
The referendum result will shape Switzerland’s fiscal and social policy, balancing pension sustainability against household purchasing power. It is also likely to influence how the country finances other long-term commitments, including defence. Notably, the change in applicable VAT rates will impact domestic and foreign businesses operating in Switzerland.
