Value-added tax is set to rise by 1 percent or more following a decision Tuesday
by Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz to
bring the proposal to the cabinet on Monday.
Each 1% hike in VAT (which
currently stands at 16%) is expected to enrich the government coffers by NIS 4
billion per year. The cabinet will also be asked to make an across-the-board cut
for government ministries totaling NIS 700 million.
Government sources in
Jerusalem on Tuesday told Globes that the rise in VAT is only a first step
determined by Netanyahu as part of a comprehensive plan to raise
The Knesset Finance Committee passed on Tuesday the cabinet’s
decision to double the deficit target from 1.5% to 3%. Steinitz told the
committee that the 2013 budget will include tax hikes and spending cuts, but
said doubling the deficit target saves the government from having to increase
taxes even more than planned.
The new target would help the government
remain on track toward the “most important” goal of reducing debt-to-GDP to 60%
by the year 2020, Steinitz said.
Netanyahu defended the VAT icrease on
his Facebook page, saying, “the economic turmoil around us is not decreasing,
but becoming stronger in the world. Last year all the leading states had their
credit rating downgraded, the US and the leading countries in Europe. It didn’t
happen to us because we stuck to the rules of responsible economic behavior.
“There are no free meals. We are attempting to
implement a decision to grant free education in kindergartens – that costs
money. We are adding to the fence meant to keep out infiltrators. Last week 16
infiltrators entered, they were all arrested – that is a success that costs
money. We are prepared with new technologies and weapons to face new threats –
that costs money,” he added.
The prime minister stated that “whoever says
it is possible to spend money recklessly, without raising more for populist
purposes, is simply endangering the State of Israel and can easily bring us to
the situation which we have seen leading European economies fall into – on the
brink of bankruptcy.
That hasn’t happened here. I won’t let that happen
Netanyahu’s political opponents were quick to slam the
Opposition leader MK Shaul Mofaz (Kadima) said Netanyahu was
killing the middle class, adding that “after turning his back on those who serve
in the army in the middle class, now Netanyahu is showing them his middle
He added: “This is the real face of the prime minister, who
continues to trample on the public. These edicts will only deepen the
Labor leader Shelly Yechimovich said “the bad old Netanyahu
is back and the citizens of Israel will pay a steep price for it. The prime
minister took a break from his political zigzagging and returned to where he
does not zigzag: harming the middle class.
“Netanyahu prefers raising a
cruel and stupid tax like VAT rather than taxing the upper echelons of society
and the corporations with fat profits,” she said. “He should stop torturing the
middle class and resign.”
Kadima MK Yoel Hasson said, “When Netanyahu
deals with buying votes with public money, it is good that there are citizens
who can pay for it.”
Former Kadima leader Tzipi Livni said raising the
VAT as if there were no socioeconomic protest would harm the middle class and
“Instead of courageously changing his priorities, Netanyahu is
letting Israel enter tough economic times with a bloated government with
sectarian political priorities,” she said.
On Monday, the Bank of Israel
held the benchmark interest rate at 2.25%, citing “uncertainty in fiscal policy”
as one factor. It said the government must raise taxes to avoid exceeding its
already increased debt goals and warned of a possible erosion of fiscal
If next year’s deficit target were set at 2.5%, as Bank of
Israel Governor Stanley Fischer and other officials have recommended, it would
necessitate a further NIS 5 billion tax hike, Steinitz said Tuesday.
government’s increased budget deficit target for next year is not reasonable and
interest rates are unlikely to stay low unless fiscal policy is put on a
“sustainable” path, Fischer said on June 28.
The bank noted in Monday’s
decision that under current arrangements the deficit would reach 4% unless taxes
“To date, decisions have not been reached regarding how
the government intends to meet this target,” the bank said. This raises concern
“that the credibility of fiscal policy, which was a central component of the
economy’s success in dealing with the previous crisis, will
Globes, Bloomberg and Gil Hoffman contributed to this report.