Opposition presents alternative ahead of tax hike

In run-up to Knesset vote finalizing increase in VAT, Labor, Meretz present alternative measures, economic program.

By
May 30, 2013 01:21
3 minute read.
Protests gather in Tel Aviv to voice their displeasure with Lapid's intended budget cuts.

Tel aviv budget protest crowd 370. (photo credit: Camilla Schick)

In the run-up to Wednesday’s 45-39 Knesset vote finalizing a Sunday increase in the value-added tax from 17 percent to 18%, opposition leader Shelly Yacimovich published a list of alternative measures, while Meretz leader Zehava Gal-On and former Finance Committee chairman Moshe Gafni presented an alternative economic program.

Yacimovich’s alternatives included reducing tax breaks for big companies, expediting taxes on natural resources, raising income taxes for the top 1% and collecting trapped profits.

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“[Finance Minister Yair] Lapid’s [tax] sources hit the middle class and the poor, further reducing purchase power, hurting small and medium businesses, leading to an economic slowdown and recession,” Yacimovich said, urging the Knesset to vote down the “cowardly” increase.

According to Yacimovich’s estimates, reducing corporate tax breaks and restructuring their tax obligations could save NIS 3 billion and NIS 2b. respectively, natural resource taxes could bring in NIS 1.6b., high-earner income tax could net the government NIS 1.7b., trapped profits could raise NIS 3b., and higher capital gains tax could lead to NIS 1.3b.

Meanwhile, Gal-On accused Lapid of “laziness,” saying he took the easy path instead of “confronting tycoons and pressure groups.”

The plan she and Gafni had put together had NIS 40b. “in the places [Lapid] didn’t dare to touch.” Their plan covered much of same territory as Yacimovich’s, but also suggested adding two new tax brackets, creating a differentiated VAT (which would assign different VAT rates for different products), a differentiated corporate tax of up to 30%, and taxing vacant dwellings, also known as ghost apartments.

It reached its higher savings estimate in part by more aggressively pursuing the same policies as Yacimovich, such as NIS 5b.



in reduced corporate tax breaks compared to Yacimovich’s NIS 3b.

“Because we have come to change the evil of the decree, we are voting in favor of an alternative,” Meretz MK Ilan Gilon said ahead of the vote, comparing the VAT increase to stealing wallets from the helpless.

If that were not enough for Lapid to choose from, the Macro Center for Political Economics (MCPE) published another alternative on Wednesday. Former Bank of Israel governor David Klein, who worked on the proposal, chastised Lapid for creating a budget that “formulated only quantitative targets for covering the deficit at the expense of other goals, especially social policies.”

The MCPE, too, recommended a differentiated VAT and a more progressive income tax.

Another group of experts, including academics from Tel Aviv University, the Hebrew University and the National Union of Israeli Students, sent Lapid a letter arguing that alternative measures would be more progressive and better for the economy.

Knesset Finance Committee chairman Nissan Slomiansky, who promised this week to create a subcommittee on differentiated VAT, said the increase would raise NIS 400 million in revenues a month.

While the Finance Ministry refused to respond to the suggestions, Lapid had previously addressed several of the ideas on offer. While agreeing that corporate tax breaks were excessive, he argued that the state could not go back on existing agreements, and that the law could only be reformed going forward in order to maintain Israel’s credibility with businesses. He agreed that the question of how to tax Israel’s natural resources was worth reexamining.

An overreliance on raising income tax on the rich would lead to “socialism,” Lapid has argued, calling it a failed policy.

He also argued that it was important for Israel to maintain a good business environment, which requires striking a balance on capital gains and corporate taxes.

Gafni, however, asked: “Does someone believe the finance minister that in another year it will be better? From where? From donations?” Having postponed a planned trip to an OECD meeting in Paris over disagreements about the equality of service bill, Lapid departed belatedly Wednesday to meet with the French finance minister.

In reaction to the postponement, Gafni had charged: “He canceled because he had to be part of the equality of service decision. It’s more important for him to be part of a press conference.

TheMarker says he’s going for a private vacation abroad.

People will pay VAT and the finance minister doesn’t go to the conference, but is going on a private vacation.” •


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