BERN. The Federal Council’s plan to raise value added tax by half a percentage point for twelve years to finance army rearmament has hit a wall in the Council of States. On Thursday, the upper house’s Security Policy Committee rejected the proposal by 8 votes to 3, with one abstention, following the Finance Committee’s lead in backing a smaller rise and a different funding mix.
The government wants a standard VAT rate increase of 0.5 percentage points, running for twelve years, to fill a borrowing fund for defence equipment. The sum is large, the security case urgent, and the Federal Council has framed the levy as the cleanest way to pay for modernisation without crowding out other priorities in the ordinary budget.
The Senate committees agree on the destination and disagree on the route. Both the Finance Committee and the Security Policy Committee accept that a fund with borrowing powers is necessary given the deteriorating security environment. Both want a VAT rise of just 0.2 percentage points instead of 0.5, and both would supplement the tax with transfers from ordinary budget surpluses and earmarked contributions from the general federal budget.
The Security Policy Committee also follows the Finance Committee in wanting to decouple the legal framework for the rearmament fund from the mandatory referendum on the VAT increase. That procedural split matters: it would allow parliament to create the fund even if voters reject the tax hike at the ballot box, a structure the government had tied together deliberately.
Opposition to the government’s model surfaced during the consultation process and has now found a parliamentary majority in the small chamber. Cantonal finance directors, already managing premium fatigue and energy costs at home, have little appetite for a visible tax rise that lands on every receipt. The People’s Party, which supports rearmament in principle, has argued that surplus years should carry more of the load before households are asked to pay.
Defence officials reply that equipment programmes cannot be funded on the hope of future surpluses alone. Fighter replacements, air defence upgrades and the drone battalion planned for 2028 all sit on fixed industrial calendars. Delay, they warn, means higher unit costs and longer gaps in capability.
The autumn session will decide whether the Senate’s committees speak for the chamber. The government retains allies among centrist senators who fear that a lighter VAT rise will leave the fund undercapitalised, and the National Council, where the People’s Party is weaker on tax questions than on security rhetoric, has yet to take its turn.
For voters, the fight previewed today may never reach the ballot box in the form the Federal Council intended. If the Senate decouples fund creation from the VAT referendum, the people could be asked to approve a smaller tax increase, or none at all, while the fund itself proceeds on surplus transfers. That is not the compromise the government wanted, but it is the compromise the cantons’ chamber is preparing.
The broader context is the neutrality referendum on 27 September and the EU package debate that opens the following day. Security spending, European alignment and tax are three files that Swiss politics usually keeps separate. This autumn, they arrive together.
Nobody in Bern disputes that the army needs money. The argument is how much of it should come from the till, and for how long. The Senate answered the first part of that question on Thursday. The chamber vote will tell Bern whether the answer sticks.