On 27 September 2026, Vaud voters approved, with 53.1% of the vote, the popular initiative “Tax Cuts for All – Restoring Purchasing Power to the Middle Class”. As a result, from the 2027 tax period onwards, cantonal income tax and cantonal wealth tax for individuals will be reduced by 12%. The approval of the initiative also means that the reform of the tax shield adopted by the Grand Council in December 2024 will not enter into force.
A 12% Reduction in Cantonal Tax from 2027
The initiative provides for a uniform 12% reduction in cantonal income and wealth tax resulting from the applicable tax scales and the cantonal multiplier. However, it does not modify the basic cantonal tax used to calculate municipal tax: the latter will continue to be determined separately based on the multiplier applicable in each municipality. Consequently, the reduction in the overall cantonal and municipal tax burden will be less than 12%. As regards income tax, this reduction will replace the previously adopted gradual reduction mechanism, which provided for a 5% decrease in 2026 followed by a 7% decrease from 2027 onwards.
The Tax Shield Reform Will Not Enter into Force
The approval of the initiative also has an important consequence for taxpayers benefiting from the tax shield. In December 2024, the Grand Council adopted an amendment to this mechanism providing, in particular, for a return to the so-called “alternative” system, similar to the system applicable before 2022. However, the entry into force of this reform was expressly conditional upon the rejection of the 12% initiative. As the initiative has now been approved, the amendment adopted in 2024 will therefore not enter into force.
The Current Cumulative System Remains in Place
The tax shield will consequently continue to apply under the cumulative system in force since 2022. Under this system, where the net return on wealth is lower than the minimum deemed return – set at 1% of net wealth – this minimum return is taken into account and then added to the taxpayer’s other income in determining the income relevant for the purposes of the tax shield. By contrast, under the alternative system which the 2024 reform sought to reinstate, the taxpayer’s total income was compared with the minimum deemed return of 1% of wealth, without adding the latter to the taxpayer’s other income. For taxpayers holding substantial wealth generating a relatively low return compared with their other income, maintaining the cumulative system may therefore significantly limit the effect of the tax shield.
