Swiss bankers battle socialists to keep tax breaks
The Swiss bankers are concerned that Socialist Party proposals to scrap a 150-yearold tax break for wealthy foreigners will scare off their best clients.
Their anxiety increased last month with the submission of a national petition to abolish the so-called forfait, an expenditure-based levy foreigners negotiate with Swiss cantons to avoid paying income tax. Appenzell Ausserrhoden will become the third canton to reject the system on Jan. 1 and Basel will follow 12 months later.
“It’s an outrage that ordinary people should pay more tax than rich movie stars, singers and sporting celebrities,” said Romain de Sainte Marie, president of the Geneva Socialist Party. “It’s a form of tax evasion.”
The Swiss backlash against the forfait comes as a slowing economy highlights the lower tax rates paid by super-rich foreigners such as Ikea billionaire founder Ingvar Kamprad. While the Socialist Party says the tax loophole has turned Geneva into a city of luxury boutiques and unaffordable housing, bankers counter that rich expatriates are key clients who create jobs and stimulate growth.
“We need to defend it for our own sakes as this is a very interesting customer base,” said Gregoire Bordier, president of the Geneva Private Bankers Association. “This system already brings significant revenue to the authorities.”
The tax regime in Geneva raised 116.4 million francs ($123 million) for the canton in 2010, according to a study by Zurich- based Economiesuisse. The figure for Switzerland was 464.2 million francs, or 0.9 percent of total tax revenue. The economy will grow 0.9 percent this year after expanding by 1.9 percent in 2011, according to a survey. The number of foreigners tapping the forfait climbed 31 percent to 5,445 between 2006 and 2010, according to figures from a body representing the finance directors of the country’s 26 cantons. The tax plan was introduced in 1862 by the canton of Vaud to get wealthy British residents to pay for local services.
Affluent forfaits, who paid an average 122,681 francs of tax in 2010, also support construction and other industries, said Bordier, who is also a managing partner at private bank, Bordier & Cie.
House prices in Geneva almost tripled over the past decade with an average transaction price of 2.13 million francs in the third quarter, according to Wuest & Partner, a real estate consulting firm with offices in Geneva and Zurich.
“In the beginning, you could say they increased property prices,” said Bordier. “Now, as prices decline, you could say they’re supporting the market.” Those arguments don’t persuade Geneva’s Socialist Party, which submitted the 10,000 signatures in January to prompt a vote on the system. That referendum may come in 2014, according to Arnaud Moreillon, secretary-general of the party in Geneva.