Don’t eat the rich: Why the Swiss masses spurned a tax on the super-wealthy

Swiss voters on November 30 overwhelmingly rejected a proposal to impose a 50 percent federal inheritance tax on estates worth more than 50 million Swiss francs ($62 million).

About 43 percent of the Swiss population participated in the referendum, with almost 79 percent voting against the proposal that promised to use the tax money for climate-related initiatives.

The tax proposal, pushed by the left-leaning Young Socialists party, would have affected only about 2,500 ultra-wealthy individuals in a nation of nine million.

In the run-up to the referendum, the issue made it to global headlines as a potential blow to the Swiss economy.

Yet the outcome defied the populist narrative that ordinary people crave taxing the rich heavily.

Analysts say the average Swiss voter chose economic pragmatism over ideology-driven redistribution of wealth, fearing the proposed tax would erode Switzerland’s reputation as a low-tax destination for global capital.

“A 50 percent tax on inheritances and gifts over 50 million Swiss francs would have primarily affected medium-sized Swiss family businesses,” Monika Ruhl, chairwoman of the executive board at Economiesuisse, an umbrella organisation for Swiss businesses, tells TRT World.

The assets of such medium-sized Swiss family businesses consist largely of investments, such as machinery, buildings and patents, she says.

“In order to pay the tax, the heirs would often have to sell parts of the company, or even the entire company,” she adds.

Backers of the tax proposal collected the 100,000 signatures needed for a public referendum. 

The proposed inheritance tax would have become law if more than 50 percent of Swiss voters – as well as a majority of the country’s 26 cantons – voted in its favour.

But Swiss voters understood that such a “high additional tax” would lead to the “exodus of individuals and companies”, compounding losses from Switzerland's already taxed wealth base, Ruhl says.

Marius Brulhart, professor of economics at Switzerland’s University of Lausanne, tells TRT World that the country is “something of a tax haven” for wealthy people, both Swiss and foreign nationals.

He says low wealth tax rates, no capital gains tax, abolished inheritance duties for direct descendants in most cantons, and a “special tax regime for wealthy foreign nationals” taxing only Swiss-visible assets are among the perks that Switzerland offers to wealthy people.

With international assets worth $2.2 trillion, the wealth management industry in Switzerland is the largest in the world.

“A 50 percent estate tax would have compromised that status and, thereby, threatened significant out-migration – as well as strongly reduced in-migration – of wealthy individuals,” he says, citing the analysis of “observed migration responses” to changed estate tax rates in Switzerland and the US.

Georg Lutz, director of the Swiss Centre of Expertise in the Social Sciences, tells TRT World that out-migration and the resulting drop in tax collection were among the many reasons for the no vote.

For example, family business owners successfully argued that it would be difficult for them to hand over their business to the next generation if massive taxes were levied on its net value, he says.

Besides, many Swiss voters, especially from centre-right parties, are in principle against any new tax, he says. 

“The combination of these arguments led to a very clear no,” he adds.

No to centralisation 

Federalism, a system of government in which provinces form a unity but remain independent in internal affairs, also contributed to the no vote. 

That’s because inheritance taxes in Switzerland fall in the cantonal domain.

Many cantons exempt spouses and children from these taxes, while rates are usually modest. 

A national levy screamed centralisation to a population fiercely protective of local autonomy.

“Inheritance and gift taxes in Switzerland are levied by the cantons, so a new nationwide federal inheritance tax would have clearly interfered with the cantons’ fiscal autonomy,” Ruhl says.

Brulhart, however, downplayed this factor as secondary. 

“I do not think... this constitutional arrangement was an important factor behind many voters’ choices,” he says, while referring to inheritance and gift taxes that remain the sole responsibility of cantons and municipalities.

“Fiscal and economic considerations weighed more heavily than institutional considerations,” he adds.

Climate no more a rallying issue  

The proposal’s climate tie-in seemed to have flopped spectacularly.

The slogan by the backers of the proposal – “The super-rich inherit billions, we inherit crises” – aimed to link wealth accumulation to climate-related challenges. 

But Ruhl says the initiative “clearly failed” because it would have been “completely ineffective” in addressing the issue of climate.

Switzerland is already a global leader in climate policy, she says, with one of the highest CO2 taxes in the world and a successful emissions trading system.

“Since 1990, the country has more than doubled industrial value creation while cutting emissions by nearly half,” she adds.

Brulhart agrees. Climate as a topic is “probably past its peak” in terms of voters’ political priorities, even though most Swiss people recognise the climate crisis as a real and important menace, he says.

“However, the earmarking of revenues from the new tax would have exacerbated the budgeting problems arising from revenue losses from out-migration – and reduced in-migration – of lucrative taxpayers,” he says.

Lutz pinned it on shifting priorities of the Swiss public, which often votes for business-friendly policies and does not favour an expansion of the welfare state or redistribution of wealth, he says.

“When this initiative was launched, climate change was a major concern... this is currently not the case anymore… linking such a tax to specific spending did not play to the advantage of this initiative,” he says.