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Higher VAT aids social insurance: Switzerland has the lowest value-added tax (VAT) rate in Europe. However, Swiss voters recently decided to raise it a little in order to lower the financial pressure on governmental social insurance.

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It is bad news for consumers: On January 1, 2011, the three different VAT rates (7.6 per cent in general; 3.6 per cent for the hotel industry and 2.4 per cent for food and other everyday goods) will be raised by 0.4 per cent each. But it was not the authorities that decided this; it was the Swiss voters themselves when a 54.4 per cent majority accepted the referendum that was held on September 27.

The additional money the hike will deliver to governmental cash boxes must be used for the national disability insurance. The primary purpose of this insurance is to support people who are unable to work, mainly for health reasons (such as physical or mental disabilities, etc.).

As these support services have become more and more cost-intensive during the last couple of years, the disability insurance fund--Invalidenversicherung as it is called in German--got hit with big losses, totalling about 1.4 billion Swiss francs annually. It is estimated that by January 2011, the insurance fund will face a loss of 15 billion Swiss francs.

Behind the figures

The disability insurance is funded 50/50 by employees and employers in Switzerland. Employees pay for it through salary deductions, while employers have to double this amount. It's not only the disability insurance that gets its funding that way; the Swiss workforce also supplies the governmental pension system with money.

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