Taxing Power for the European Budget? Fiscal Lessons from Switzerland to the EU

After the end of off-budget funds like the Recovery and Resilience Facility (2026) and the Security Action for Europe (2030), the European Union (EU) budget will remain small and dependent on transfers from the member states. However, the EU needs money to create public goods, such as protecting external borders, fighting climate change, or regulating migration. It would need revenues from taxes (income, property, and value added tax). Today, this is legally and politically impossible. It was so also in Switzerland before 1915, and yet over time the Federation got the power to tax and still has it today. This article examines under what conditions the constituent units of a fiscally decentralized multilevel governance systems transfer the power to tax on a permanent (and not temporary) basis to the centre. Empirically, it focuses on the Cantons (the units) and the Federation (the centre) in Switzerland. How is the Swiss federal power to tax regulated? What conditions have been put in place to reassure the Cantons that they are not losing their own tax powers and can even benefit from the federal power to tax? Does Switzerland prove that a co-existence of tax sovereignties (centre and units) is actually possible? Interestingly, the federal power to tax in Switzerland remains temporary despite several attempts to make it permanent: it must be renewed periodically via popular vote, the last time from 2018 to 2035. Why has such power become permanent in practice but not on paper? The article relies on thematic analysis of primary documents, semi-structured elite interviews, and causal process tracing. Through comparative fiscal federalism, it identifies important tax lessons for a constitutive reform of the EU’s system of public finances.