PM, Steinitz to bring 1% VAT hike to cabinet

The value added tax (VAT) is set to rise by 1 percent or even more following a decision Tuesday by Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz to bring the proposal to the cabinet on Monday.

As already reported by "Globes," each 1% hike in VAT will enrich the government coffers by NIS 4 billion in revenues. The cabinet will also be asked to make an across-the-board cut for government ministries totaling NIS 700 million.

Government sources in Jerusalem told "Globes" Tuesday that the rise in VAT is only a first step decided upon by Netanyahu as part of a comprehensive plan to raise taxes.

The government deficit in 2013 is expected to reach NIS 58 billion compared with the target of NIS 30 billion and the government must formulate an overall plan of cuts, tax hikes and ministry budget cuts to reach this target.

Netanyahu defended the tax hike on his Facebook page Tuesday, writing that "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."

He added: "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 success which costs money. We are prepared with new technologies and weapons to face new threats - that costs money."

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 here."

Labor party Chairman Shelly Yechimovich responded on Tuesday to the announcement, saying the "old and evil Netanyahu has returned", and that the citizens of Israel will pay dearly for this. She called the proposed tax hikes "cruel and unjust."

According to Yechimovich, Netanyahu's proposed tax hike constitutes "more of the same destructive policies of the last decade, where a reduction in billions of shekels has brought the middle class man to his knees, paying out of his own pocket for health, education, homeland security, local government and all other components of life."