The Swiss Federal Council has announced a proposed increase in the value-added tax (VAT) by 0.7 percentage points to fund the 13th pension payment of the AHV, Switzerland's social security system.

This decision aims to maintain the financial balance of the AHV until 2030, with the additional pension expected to incur annual costs of approximately 4.2 billion Swiss francs starting in 2026. The proposal, which marks the largest VAT increase since 1999, will be presented to the Swiss Parliament and is subject to a mandatory referendum, allowing the public to have the final say.

The Social Democratic Party (SP) advocates for partial funding through wage contributions, arguing it is a fairer approach.

Meanwhile, the federal government's share in AHV funding is set to decrease slightly.

The VAT increase is based on revised financial projections for the AHV, underscoring the urgency of securing its long-term stability.