In Switzerland, married couples file one combined tax return. Because tax rates rise in line with income it means that second incomes of married couples are taxed at a higher rate than those of single cohabitating ones.
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Those campaigning to have this changed argue that it is unfair and acts as a disincentive for second income earners. In 1984, Switzerland’s Federal Court ruled that this unequal treatment was unconstitutional when the disparity reached a certain level.
This week the Federal Council, Switzerland’s executive, agreed the details of a plan to remove this ‘mariage tax penalty’. The plan will now be presented to parliament.
An estimated 80,000 married couples are likely to see their tax drop, by several thousand in some cases. The Federal Council estimates that a further 15,000 second income earners will take up work once this tax penalty is removed. Most of these will be women. Another element of bias against working women, married or unmarried, is Switzerland’s system of parental leave. Paid only paid to mothers, it creates an economic incentive for couples to chose a father’s career over a mother’s.
The married couple tax change, expected to reduce government tax revenue by CHF 1.15 billion per year, will only affect federal taxes. Federal taxes will be calculated twice, once as a married couple and and again as two separate individuals. Then the lower of the two will be applied.
While some married couples will benefit, unmarried parents will lose out. Under the current system parents enjoy preferential tax rates based on the number of children they have, helping to offset the marriage tax penalty. Currently, unmarried parents also qualify for this despite not suffering the ‘marriage tax penalty’. Under the new plan unmarried parents will no longer qualify. Single parents however will be compensated with a new tax deduction.
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