The Economic Commission of the National Council wants to abolish the taxation of the imputed rental value, but at the same time keep the alimony deduction and an extensive debt interest deduction. That would be an invitation to the left for another referendum campaign.
The Economic Commission of the National Council is generous towards homeowners.
Politicians have been debating the abolition of taxation on imputed rental value for decades. This taxation as income in kind is technically “correct” in combination with tax deductions for debt interest and property maintenance, but for some those affected the imputed rental value appears like a “fictitious” income and is therefore difficult to understand.
Despite many attempts, there has not yet been a reform variant that can win a majority. A central reason for this is illustrated by the decision by the Economic Commission (WAK) of the National Council this week: the bourgeois reformers want the fiver and at least half the price, which is difficult to convey. Specifically: You want to abolish the taxation of imputed rental value, but not a consistent system change with the simultaneous abolition of all associated tax deductions.
Last year, the Council of States voted by a narrow majority in favor of the following variant: abolition of the imputed rental value on first properties (but not on second homes, so as not to annoy the tourism cantons), abolition of the deduction for property maintenance with possible cantonal exceptions for monument protection and energy saving, reduction of the maximum debt interest deduction on 70 percent of the taxable investment income (instead of 100 percent plus 50,000 francs) and special deduction on debt interest for first-time buyers of real estate for ten years.
With average mortgage interest rates of 1.5 percent, according to federal estimates, this would result in a total tax cut for the federal government and cantons of around CHF 1.7 billion per year for homeowners – and thus corresponding losses for the tax authorities. However, even proponents in the Council of States admitted that this variant was not the last word, partly because of the distinction between first and second homes.
For a wide alimony deduction
The responsible National Council Commission is now daring a much more offensive variant, as in theirs Message emerges from Wednesday. In addition to the abolition of the imputed rental value on all owner-occupied apartments, this variant also retains the deduction for effective property maintenance; here only the possibility of a flat-rate deduction is to be abolished, which according to reports is currently being used by around half of taxpayers. And deductions for energy saving investments should continue to be possible for the federal government and the cantons. For the general debt interest deduction, the National Council Commission wants to allow a maximum of 100 percent of the taxed investment income. In return, the version proposed by the national councils does not introduce a special deduction from debt interest for first-time buyers.
To appease the tourism cantons, the WAK has one Commission initiative passed, calling for a constitutional basis for a property tax on second homes.
The Federal Tax Administration is responsible for the financial consequences of this reform on behalf of the National Council Commission estimated. The result is likely to come as a shock to some: With an average mortgage interest rate of 1.5 percent, this reform would result in revenue losses of around CHF 3.8 billion per year for the Treasury. That would be more than twice as much as with the variant of the Council of States.
In the name of energy policy
As an alternative, the taxation of the imputed rental value was discussed, but limited to 60 percent of the market rent. The federal court requires a minimum of 60 percent because of the similar treatment of owners and tenants. In practice, the average federal tax rate is currently slightly over 70 percent, and in the cantons it is 60 to 65 percent. A reduction to 60 percent would be loud federal estimate a total tax reduction of around CHF 600 million per year.
The figures do not take into account the fact that the adjustments of the cantonal tax values to the market values are often delayed for many years. In the comparison of the two concepts, the system change prevailed in the commission with 11 votes to 7, with 7 abstentions. This variant achieved a narrow majority of 12 to 10 votes in the final vote.
Judging by the estimates of the financial consequences, the majority variant can hardly be lifted without government austerity measures. It would probably have major acceptance problems and would be an invitation to the political left for another tax referendum. What were the proponents’ thoughts? The Basel-Landschaft FDP National Councilor Daniela Schneeberger said on Wednesday when asked that the planned energy saving deduction was in line with the energy and environmental policy of the federal government. The planned maintenance deduction will mean a significant reduction compared to the status quo, since a flat-rate deduction would no longer be possible in the future. Moreover, according to Schneeberger, the estimates of the tax authorities should not be given too much weight, as they are based on old data from only two cantons. In addition, the interest rate level on new longer-term fixed-rate mortgages is already well over 1.5 percent.
basis for negotiation
According to Schneeberger, the National Council Commission’s proposal is to be regarded as the maximum variant that serves as a basis for discussion in the decision with the Council of States: “We are aware that the load should not be overloaded.” There is still a long way to go and the new variant is not yet the last word.
The average interest rate level of 1.5 percent assumed in the estimate should not be too far from the current reality. However, the average interest rate level on new longer-term fixed-rate mortgages today is around 2 percent for a five-year term and around 2.5 percent for a ten-year term. However, it will take many years for the interest rate hikes on fixed-rate mortgages to take full effect.
According to federal information, an increase in the average interest rate by one percentage point would reduce the tax shortfalls due to the proposed reform by around one billion francs. According to estimates, even with an interest rate level of 3.5 percent, the federal government and the cantons together would still have to expect losses of around 2 billion francs per year.
It is not the first time that the question arises whether the project to abolish imputed rental value is politically dead. “The template is not dead, but it is very challenging to find a solution that can win a majority,” says Lucerne’s Central National Councilor Leo Müller, President of the Economic Commission. His conclusion: “The majority who want the system change must have the insight that compromises are needed so that the proposal is financially feasible.”