The Swiss government plans to increase the value-added tax (VAT) by 0.7 percentage points starting in 2026 to help finance a 13th monthly pension payment for retirees.

This decision follows a public vote in favor of higher pensions, which will cost an estimated 4.2 billion Swiss francs in the first year, rising to 5.6 billion by 2040. The VAT increase is expected to cover about two-thirds of the costs, with the remaining third requiring further reforms.

The government also plans to reduce its direct subsidy to the pension system, a move that has faced criticism.

The proposed VAT hike is seen as a more equitable solution compared to additional payroll deductions, which would disproportionately affect younger workers.

However, the increase could lead to higher inflation and economic slowdown, prompting concerns about its broader impact on the economy.