The Knesset approved the government’s multi-billion-shekel tax-hike package
Monday – after Prime Minister Binyamin Netanyahu agreed not to impose an
increase on middle-income earners.
The Bill to Shrink the Deficit and
Deal with the Repercussions of the International Economic Crisis passed its
second and third – meaning final – Knesset readings, with 28 in favor and 16
opposed.
The bill underwent an accelerated legislative process, passing
through the Knesset House Committee in the morning and a first plenum reading in
the afternoon, followed by two Knesset Finance Committee review meetings before
becoming law in the evening.
The Value Added Tax will rise by one
percentage point to 17 percent on September 1.
Starting January 1, all
income between NIS 14,001 and 41,830 per month will be taxed an extra 1% and all
income above NIS 67,000 will be taxed an extra 2%, while the green tax, the
purchase tax on investment apartments, and employer contributions to the
National Insurance Institute will all be updated.
An estimated 421,000
workers escaped the salary surtax after Netanyahu and Finance Minister Yuval
Steinitz reached a last-minute agreement with Knesset Labor, Welfare and Health
Committee chairman Haim Katz to eliminate the 1% increase for the NIS
8,881-14,000 bracket.
The three agreed to adjust the second, third and
fourth income brackets so that earnings will be taxed as follows: less than NIS
5,200 per month, 10%; NIS 5,201-8,880, 14%; NIS 8,881-NIS 14,000, 21%; NIS
14,001-20,000, 31%; NIS 20,001-41,830, 34%; NIS 41,830 and above,
48%.
The government agreed to Knesset Finance Committee chairman Moshe
Gafni’s request to exclude one-time earnings such as severance pay, pension
income or proceeds from savings or asset sales from the 2% high-earners surtax.
One-time payments will be treated as if they were delivered over a six-year
period, ensuring that they do not cross the surtax threshold of NIS 800,000 per
year.
The Knesset, in an emergency meeting during the summer recess, also
approved the first reading of an amendment to the Encouragement of Capital
Investments Law, which changes the tax rates on an estimated NIS 120 billion in
“trapped profits” accrued by multinational corporations.
The law
currently exempts the corporations from certain taxes as long as they invest
their profits in further activities in Israel.
Defending the new taxes in
the plenum, Steinitz echoed a statement made by Netanyahu earlier on Monday:
“Just like in matters of security, when it comes to the economy we cannot rely
on anyone but ourselves – and, of course, our Father in the Heavens,” he
said.
“We do not have a security net of hundreds of millions of dollars
in case there is an economic and financial crisis and our credit rating is
lowered,” the finance minister explained. “Since we cannot rely on anyone in
economic matters, we have, for the past four years, been fighting to defend the
Israeli economy, and we are committed to responsibility and
seriousness.”
Labor leader Shelly Yechimovich slammed Steinitz and
Netanyahu, saying they consistently “take a little from those who have a lot,
and a lot from those who have little.”
According to Yechimovich, a fair
tax would redistribute wealth to a degree by imposing high taxes on the wealthy
and little to no taxes on the poor. The deficit grew because of Netanyahu’s tax
reforms, which he continued even though experts told him it would not work, she
added.
“This government serves haredim, settlers and the rich,” Meretz
leader Zehava Gal-On asserted. “Stop giving tax exemptions to tycoons and giant
corporations. Stop giving gifts of tens of millions to those with
connections.”
While MKs discussed the new economic policies, Hano’ar
Ha’oved Vehalomed Labor youth movement, the Forum for Social Justice and other
groups protested outside the Knesset, pushing empty shopping carts meant to
represent citizens’ inability to purchase basic necessities.
The
protesters called for MKs to vote against the new tax and budget cuts, abolish
poverty and expand budgets “for the good of all Israeli citizens,” the protest
leaders stated.
Pesach Hausafter of the Forum for Social Justice lamented
the budget cuts, which “target the middle class and the weaker
sectors.
With arrogance and audacity, the prime minister decreed against
those who have already made cuts in all aspects of their lives and made them
unable to live with dignity in this land.”
For a table showing how much income tax people can expect to pay from January 1 next year, compared to what they pay now, click here.