Taxes in Vaud: purchasing power at the heart of the vote

In the canton of Vaud, the tax debate is heating up in the run-up to the vote on 27 September. The so-called ‘12 per cent’ initiative places a simple question at the heart of the campaign: should cantonal income and wealth taxes be reduced to restore households’ purchasing power and improve the canton’s tax appeal?

For SME owners, the self-employed and their tax advisers, the issue is not simply a matter of taxpayers versus the state. A tax cut can affect entrepreneurs’ disposable income, the wage pressure felt by employees, remuneration decisions and, more broadly, the environment in which a business recruits, invests and sets its prices. But it also raises the question of how to fund public services on which part of the economic ecosystem depends.

A referendum that turns taxation into a business issue

According to the arguments put forward in the public debate, the 12 per cent initiative aims to reduce cantonal income and wealth taxes. It forms part of a wider discussion on purchasing power: when the tax burden decreases, the after-tax disposable income of the taxpayers concerned automatically increases, all other things being equal. For an employee, this can ease the strain on the household budget. For a self-employed person or a shareholder-director, the effect can be seen on several levels: personal tax liability, saving capacity, and the financial flexibility to fund personal or professional projects.

In an SME, the owner’s personal tax situation is never entirely separate from the life of the business, even when the legal structure clearly distinguishes between personal and business assets. An entrepreneur taxed on both their income and wealth may have to weigh up the options between a salary, dividends, reinvestment, building up reserves or repaying debts. A change in cantonal tax rates does not, on its own, resolve these trade-offs, but it can alter personal cash flow calculations and therefore the way in which the director plans their remuneration.

For fiduciaries, the practical challenge will be to avoid jumping to conclusions. A tax cut announced at a political level does not automatically affect all situations in the same way. The situation depends on income level, taxable assets, the municipality, the legal form of the business, family circumstances and other applicable tax parameters. In the context of a referendum, it is therefore prudent to consider scenarios rather than general promises.

The tax barometer revives the comparison with other cantons

The Vaud Chamber of Commerce and Industry and the audit firm KPMG have presented a Vaud tax barometer comparing the canton’s tax system with that of other Swiss cantons. According to reports by La Télé, their calculations suggest that the initiative would enable the canton to move up several places in this tax ranking.

The figure at the heart of the debate is the maximum tax rate of 41.5 per cent currently attributed to Vaud in this comparison. According to the same source, this level would place the canton third highest in Switzerland, behind Geneva and Basel-Landschaft. Supporters of the initiative see this as a negative signal for the canton’s tax attractiveness, particularly when comparing Vaud to other major economic centres.

For an SME, however, tax attractiveness is not simply a matter of the rate shown in a ranking. A company chooses its location based on a range of factors: availability of labour, access to customers, property costs, transport links, proximity to business partners, quality of infrastructure, personal taxation and corporate taxation. In owner-managed companies, the director’s personal tax burden can tip the balance, particularly when it comes to attracting or retaining entrepreneurial talent.

This aspect is particularly sensitive for family businesses, the self-employed considering a conversion to a limited company, or directors preparing for a business handover. Wealth tax may be a factor to consider when the value of the business constitutes a significant proportion of the owner’s private wealth. Here again, it is not a question of drawing a blanket conclusion, but of planning ahead: a change in the tax environment can influence decisions regarding profit distribution, financing and wealth planning.

Purchasing power: an indirect effect on wages and prices

The debate surrounding the initiative also presents itself as a debate about the middle class. Supporters of the tax cut argue that a reduction in cantonal taxes would boost purchasing power. For businesses, this is important because households’ purchasing power influences consumption, pressure on wages and perceptions of the cost of living.

In a shop, restaurant, service business or craft enterprise, higher disposable income can support local demand. However, the actual effect depends on household behaviour: some will spend more, whilst others will save or simply absorb cost increases they have already faced. An SME should therefore not treat a potential tax cut as a guaranteed source of additional turnover. However, it can factor it into its assessment of the cantonal economic climate.

When it comes to wages, the link is more subtle. When employees feel a loss of purchasing power, wage negotiations become more difficult. A tax cut may ease this pressure for some households, without replacing it with a wage policy. Employers remain faced with their own constraints: profit margins, productivity, competition, social security contributions, insurance, rent, energy and financing costs. Employees’ personal tax situation may factor into their overall sense of well-being, but it is not a wage management tool controlled by the company.

For the self-employed, the issue is even more straightforward. Their business income is often variable, and tax can represent a significant cash outflow if advance payments have not been properly planned for. A tax cut, if it were to come into force, could improve after-tax cash flow. However, it does not eliminate the need to set aside the necessary amounts for advance tax payments, social security contributions, VAT where applicable, and business investments.

The counter-argument: preserving the ecosystem that makes the canton attractive

Opponents of the initiative dispute the notion that Vaud suffers from a lack of attractiveness. Socialist National Councillor Samuel Bendahan, quoted in the debate reported by La Télé, believes that businesses in the canton are lightly taxed, dynamic and create jobs. In his view, a significant tax cut would deprive the canton of resources needed to maintain the quality of life that also contributes to its attractiveness.

For an SME, this argument merits consideration without ideological bias. Businesses benefit directly or indirectly from the public environment: training, transport, security, infrastructure, administration, healthcare and the availability of a labour pool. If tax revenues fall, the political question becomes one of budgetary priorities: which services should be maintained, adapted or funded in alternative ways? The consequences are not automatic, but they form part of the risk that must be factored in.

In practice, therefore, business leaders must analyse two dimensions simultaneously. On the one hand, a lower private tax burden can increase disposable income and make the canton more competitive for certain taxpayers. On the other hand, a region’s attractiveness also depends on services and infrastructure, which come at a cost. The tax debate in Vaud highlights the tension between these two perspectives: reducing taxes to bolster purchasing power, or preserving public resources that contribute to the quality of the economic environment.

What fiduciaries can already do in the run-up to the verdict

Without prejudging the outcome of the 27 September vote, trust companies have a useful role to play: transforming a political debate into a personalised, figures-based analysis. For a business owner, the key question is not merely whether a tax cut is desirable, but what difference it would make to their specific circumstances.

A first step is to review the latest tax assessments and identify key areas: taxable income, taxable assets, remuneration structure, dividends, personal debt, shareholdings in the company, pension provisions and property holdings. One must then distinguish between personal and business implications. A personal tax saving does not automatically improve the company’s profit and loss account, but it can influence the owner’s decisions.

For SMEs that employ staff, the discussion may also relate to salary planning. If employees raise the issue of the cost of living, the employer can explain the breakdown between gross salary, social security contributions, personal tax and net income. This educational approach is no substitute for negotiation, but it prevents the conflation of factors that are not subject to the same control. It also helps to prepare HR budgets with greater clarity.

Companies considering setting up a new operation, restructuring or a business handover should, for their part, avoid making decisions based on a single tax factor. Comparing different cantons is useful, but it must be supplemented by a comprehensive analysis: the market, staff, corporate taxation, the owner’s tax liability, operating costs, regulatory constraints and long-term objectives. A change in cantonal tax rates may influence the decision, but rarely determines it entirely.

The vote in Vaud therefore comes at a time when taxation is once again a key issue not only for purchasing power but also for regional competitiveness. For SMEs, the challenge is not to comment on a ranking, nor to promise a uniform gain. It is to assess how a potential change in tax policy would affect managers’ incomes, employees’ expectations, the cash flow of the self-employed and the local economic balance. This is precisely where fiduciary support comes into its own: linking political decisions to the actual figures of each business.