Calls mounted this week for Finance Minister Yair Lapid to lower taxes,
following his ministry’s revelation that the deficit is on track to come in well
below the 4.65 percent of GDP target for the year.
“It turns out Lapid
was not forced to raise your taxes,” opposition leader Shelly Yacimovich said on
Wednesday at a Small and Medium Businesses conference in Airport
“The new data published in light of the changes to the method of
measuring [GDP] and economic growth confirm and reinforce our position, that
from the start there was no need to impose such hard measures on the
Following a deficit explosion in 2012 that came in at over
double the original target, the newly anointed Lapid cut proposed government
spending and raised taxes for 2013 and 2014 in order to fill the budget hole and
bring the deficit down to sustainable levels.
Alongside the new method of
calculating GDP, which added some NIS 66 billion to the estimated size of
Israel’s economy in 2013, a combination of higher-than-expected tax revenues and
lower-than-expected spending brought the 12- month deficit in August down to
3.3% of GDP.
Yacimovich took the opportunity to blast Lapid for unpopular
tax policies, which have included hikes on cigarettes and beer, a value-added
tax increase, and an income tax rise set to go into effect in 2014.
berated him for not tackling corporate tax benefits, used to incentivize capital
investments in the economy.
“Take the NIS 4 billion in tax benefits that
the four biggest companies in the economy received in 2010, divide it into 4,000
small and medium businesses, a million shekels per business, and you’ve
immediately got job creation, a real fight against concentration, growth,
reduced gaps and entrepreneurship,” she said.
Opposition MKs were not the
only ones looking for changes, business groups also got in on the
The Federation of Israeli Chambers of Commerce, a business lobby,
called on Lapid to undo the hike in the corporate- tax rate, and bring it back
down to 25% from 26.5%.
“For the first time in Israel’s history the
national output has reached NIS 1 trillion, and we must continue the growth
momentum,” FICC president Uriel Lynn said speaking at the same conference. “The
improvement in the state budget should be seen as an opportunity to establish
longterm policies that will give new momentum to the business sector, so I turn
from this stage to the finance minister and suggest to him to take advantage of
this opportunity now.”
In Tel Aviv, the Israel Securities Authority
released a committee report on improving liquidity in the stock
Among its recommendations to Lapid: lower capital gains taxes to
“Reducing the tax rate will help the stock exchange companies raise
capital in the stock market and may actually cause an increase in government tax
revenues from capital gains,” the report said.
But even ISA chairman
Shmuel Hauser agreed that while the committee recommendations served their
specific policy goals, it was up to the Israel Tax Authority and the Finance
Ministry to weigh the broader implications of various tax increases.
committee found that lowering capital-gains taxes will increase liquidity and
even help revenue,” he told The Jerusalem Post. “But it’s up to them to weigh
the competing goals. We’re not the experts on that.”
Though a lower
deficit is in many ways welcome for Lapid and the economy at large, balancing
the political pressure to roll back tax increases may prove difficult when
weighed against other economic realities.
In 2014 the deficit target will
drop to 3% of GDP, and despite the impending income-tax increase, many
economists believe it will be difficult for the budget to stay in
“We believe that the deficit in the next budget year will be
higher than the target, and will come out around 3.6% (compared to 3% according
to the government target),” analysts at Harel Finance wrote in a macroeconomic
survey the start of the month, though the new GDP formula would bring that
figure down somewhat.
“The meaning will be additional budget cuts (in our
opinion, the ability to raise taxes has been completely exhausted), which will
have a negative impact on economic activity.”
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