Finance Minister Yuval Steinitz 311 R.
(photo credit: REUTERS/Ronen Zvulun)
Value-added tax will increase to 17 percent from 16% on September 1, as the
Knesset Finance Committee approved the measure by 11 votes to six on
The government introduced the VAT increase earlier this week
as part of a series of austerity measures it hopes will raise NIS 14.15 billion
next year and help achieve the new budget deficit target of 3%. The package
includes a 1% income tax hike for above-average earners, 2% surtax for those
whose income is over NIS 67,000 per month, and legislative amendments to allow
for more tax collections from large corporations.
chairman Moshe Gafni (United Torah Judaism) said at Wednesday’s meeting that
more measures would be necessary, but warned the government against making
decisions without consulting his panel. On Tuesday, Finance Minister Yuval
Steinitz (Likud) agreed to Gafni’s request to postpone the VAT hike from August
“The Israeli economy has prospered for more than three years, but the
storm is raging all around us,” Gafni told the committee. “We are a country that
relies on exports, and there is a revenue shortfall resulting from the crisis in
Europe. It is possible to do nothing, but that would put us in the same
situation as many European countries.”
Labor chairwoman Shelly
Yechimovich labeled the committee’s approval of the VAT hike a “mark of shame,”
and said it demonstrated “complete surrender” to Prime Minister Binyamin
Netanyahu’s failed policies.
“The VAT increase is an unethical and
uneconomic act. It places the burden of refilling the great pit of state
revenues on the middle class and the poorest, instead of on the fat pockets of
the wealthiest thousandth of Israeli society, who continue to engorge alone from
the fruits of growth,” Yechimovich said.
Steinitz told the committee that
the government had a “duty to show the world that we are not Spain,” and that it
was capable of taking action in the face of the forecast growth slowdown.
Average growth in the euro bloc is negative, and the credit rating of almost
every country on the Continent has been downgraded, he said, “but when a
European country falls, it has a safety cushion.... We don’t have a safety
The finance minister said the general public would contribute
around NIS 7.5b. to state coffers under the austerity package, while the
remaining NIS 6.5b. would come “from the wealthy only.” He added that the
government was going even further than the recommendations of the Trajtenberg
Committee on Socioeconomic Change by lowering the 2% wealth tax threshold from NIS 80,000 per month to NIS 67,000.
Bank of Israel Governor Stanley
Fischer also presented a pessimistic picture of the global economy, saying the
most worrying thing was the high Spanish and Italian bond yields, which would
make it difficult for those governments to finance expenditures.
pointed out that Israel’s economy had grown faster than those of other developed
countries in every quarter since 2008, and said the current slowdown was a
result mainly of lower demand for exports caused by a weakened global economy.
He noted that unemployment was now 7%.
The governor said there were two
possible scenarios: Either Europe would deal with its crisis, or some countries
would leave the euro bloc. Nobody knows what the consequences will be if the
second scenario unfolds, he said, “but we must be prepared for every possible
event and deal with the situation in advance, not afterward.”
Wednesday, the Federation of Israeli Chambers of Commerce slammed the austerity
package, with president Uriel Lynn warning it would hurt salaried workers and
Lynn emphasized that the VAT increase would be imposed
on businesses not long after the corporate tax increased by 1 percentage point,
to 25%, and dividends tax increased by 5 percentage points, to 30%.
again, the wealthiest companies would not be made to share the burden, he said,
and would continue to benefit from over-the-top tax benefits under the
Encouragement of Capital Investments Law.
Meanwhile, Shas chairman Eli
Yishai announced that he had persuaded Steinitz to restore NIS 60 million in
spending cuts to the Shas-controlled Interior and Construction and Housing
Yishai said the money would be used to help cashstrapped
local authorities and fund public housing.
“Local authorities in Israel
and thousands of poor people who need housing were saved today from a sharp cut
because of our uncompromising stance on their behalf,” Yishai said.