Finance Minister Yuval Steinitz decided Tuesday to postpone the one percent rise
in value-added tax by a month, following consultation with Knesset Finance
Committee chairman Moshe Gafni.
VAT was supposed to rise from 16 to 17
percent on Wednesday, August 1, but the increase will now be implemented on
September 1 in order to allow businesses time to prepare, the Treasury
The cabinet approved the VAT increase Monday as part of a series of
sweeping austerity measures that it hopes will raise NIS 14-15 billion next year
and reduce the budget deficit by 1.5%.
The austerity package included a
1% income tax hike for those earning NIS 8,881-41,830 per month, 2% surtax for
all income above NIS 67,000 per month and across-the-board expenditure
The Knesset will vote next Monday on the legislative measures
contained in the package, including a proposed amendment to the Law for the
Encouragement of Capital Investment, which would allow for tax collection from
large corporations that benefit from specific arrangements with the
Prime Minister Binyamin Netanyahu told Channel 2 Tuesday night
that the government has done a lot for the middle class, but that it also needs
to worry about state revenues.
“We declared free education for children
aged three and up, we brought about a reduction in cellphone rates and hundreds
of shekels in tax credits per month for families. We added to spending on
doctors, police and much more,” he said.
In a separate interview with
Channel 1, Netanyahu added that maintaining a vibrant economy is the most
significant type of social justice.
“I have a responsibility to watch
over the economy, and that is the most important kind of social justice,”
Netanyahu said in defense of the government’s decision to cut budgets and raise
Society’s weakest sectors would only be affected by 3% of the
approved tax increases, Netanyahu argued, highlighting that capital gains,
corporate tax and taxes on the wealthy accounted for a majority of the NIS 14-15
billion in new government revenues.
Relative to the crisis in Europe,
stagnation in the US and slowed growth in China – all factors Netanyahu cited as
dragging down Israel’s export-based economy – Israel has still been doing rather
well, the prime minister said.
“Why is the economy good? Because we managed it properly!” Steinitz admitted
before the cabinet vote that the much-criticized reforms were “not enjoyable,”
but stressed that the government must show it will meet next year’s 3% deficit
target and maintain Israel’s “good image” as an island of economic stability and
place for investment.
Labor leader Shelly Yechimovich said in a press
statement that the decision to postpone the VAT increase by one month is the
latest evidence of Netanyahu and Steinitz’s “indecisive behavior.”
is further proof that their economic decrees were drafted out of panic and that
now they are being carried out with negligence,” she said. “The frequent changes
are creating a feeling of instability in the economy.”
“On top of the
fact that this is clearly an unjust tax, Netanyahu and Steinitz’s confusing
behavior is dangerous, slows down business activity, reduces planning times and
manufactures a complete distrust in Israel’s economic leadership,” Yechimovich
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