To escape a wealth tax hike in his homeland, real estate magnate Tord Kolstad left Norway two years ago. But the danger has followed him south.
Switzerland, Kolstad’s new home, is in the midst of a heated debate about inheritance taxes on the super-rich. The proposal — to take half of any passed-on wealth above 50 million francs ($59 million) — has prompted public warnings from business-owning multi-millionaires and billionaires that they’ll go elsewhere.
Similar debates are playing out around the world as governments consider ways to squeeze more from the richest to help deal with huge deficits and fund public services. There too, officials have been told that such measures will lead to an exodus of the wealthy and a loss of investment.
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Under Switzerland’s system of direct democracy, the proposal will go to a national vote, expected in about two years. But even airing such an idea is feeding into a sense that the country’s identity is being gradually eroded. After worries about the stability of its financial industry following the collapse of Credit Suisse, and cracks in its much-cherished neutrality, the inheritance proposal is a threat to its reputation as a low-tax, business-friendly nation.
Switzerland has long been known as a custodian for the world’s rich. Even after the end of strict Swiss banking secrecy, it has retained a reputation for private banking. It’s home to UBS Group AG, the world’s largest wealth manager, and Alpine resorts like St. Moritz and Gstaad are known as playgrounds for the ultra rich.
“It was a very radical proposal and of course I think it would have a negative impact on a lot of business owners,” Kolstad said in an interview. “Even though I’m very happy in Switzerland I would have to reconsider if this goes through.”
Kolstad was one of dozens of wealthy Norwegians who moved to the Alps after Norway’s Socialist government effectively doubled wealth tax rates on the top bracket. Switzerland is currently home to 22 of the world’s 500 richest people, according to the Bloomberg Billionaires’ Index.
Isabel Martínez, a senior economist at KOF ETH Zurich, estimates that there are about 2,500 tax payers with a wealth of more than 50 million francs, accounting for less than 0.1% of all tax payers. They contribute about 5-7 billion francs a year to government coffers, about 6% of revenue from income, profit and capital gains levies.
Switzerland currently doesn’t have an inheritance tax at the federal level. Some cantons — as the states are called — impose levies, though spouses and children are exempt in most cases. Where descendants are taxed, the rates are no more than 3.5%, after a five- or six-figure exemption allowance.
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While any inheritance tax change is some way off — if it even happens — it’s become a hot topic. Various wealthy figures have appeared regularly in local media denouncing the proposal, keeping the controversy in the public eye.
Behind all the furor is the youth wing of the Social Democrats — the Juso. To fund climate measures, they gathered enough signatures — more than 100,000 — to hold a national vote on the higher inheritance tax.