Finance Minister Yair Lapid said he would submit the draft budget for 2013-2014 to government ministers Monday night, as a plethora of interest groups and politicians continued to make their cases on taxes, spending and the deficit.
“A game will begin in which every minister will complain that his ministry is a disaster area,” Lapid said, bracing for the weeks of political fights before the cabinet must approve the budget in mid-June. “That’s part of democracy.”
In a healthy show of that democracy, politicians within several political parties publicly bickered about their budgetary positions.
At a Hatnua faction meeting, MK and former finance minister Meir Sheetrit said that Lapid’s decision to raise the budget deficit from 3 percent to 4.65% was “dangerous” and bound to snowball.
“I hope the government will wake up and change its mind,” he said.
His fellow Hatnua member, Environmental Protection Minister Amir Peretz, disagreed.
“I think increasing the deficit is fine. I support the 4.65% goal,” Peretz said, noting that a high deficit meant fewer cuts to social services.
“I don’t think low deficit brings growth.”
Whereas Labor leader Shelly Yacimovich enthusiastically supported the increase to state spending, Labor MK Avishay Braverman, for the second time this week, said it was the wrong policy. Speaking at the Calcalist conference, the Knesset Economics Committee chairman said he was willing to cooperate with the government from the opposition toward the goal of strengthening the middle class, only “while maintaining budgetary responsibility.”
Braverman’s solution, however, was not to cut spending. “Like in a household, you can increase spending if there are revenues,” he said, calling for a clearer, simpler tax code that would prevent huge companies from paying minimal tax rates.
On Sunday, a Finance Ministry report revealed that corporate tax breaks had risen from NIS 2.3b. in 2003 to NIS 5.6b. in 2010, a year in which just four companies received 70% of the breaks.
Reuven Schiff, a managing partner at RSM Schiff, who spoke at the conference, calculated that reform of the capital investments law, eliminating value-added tax exemptions for fruits and vegetables, and taxing the sales of nonprimary residences could save the government NIS 38b.
Even Federation of Israeli Chambers of Commerce president Uriel Lynn called for the capital investments law to be reformed, calling it “one of the most discriminatory and distortionary laws created in Israel.”
“The law creates a situation that imposes additional taxes on the entire business sector, in order to fund tax breaks to a select group of industrial enterprises,” he said, adding that the value of the lost tax revenues was eight times the amount that could be earned by raising the corporate tax rate 1%, as Lapid reportedly plans to do in his budget.
Speaking at a Yesh Atid faction meeting, Lapid said that changing laws retroactively was difficult, but promised to seek an arrangement with the companies in question.
“We have a shared interest, so that should make things work better. We can only change the rules of the game through consensus.”
Another area in which changing the rules prompted outrage was a rumored elimination of tax benefits to olim.
“The legislative initiative constitutes a breach of promise by the government [to olim], as they were under the assumption they would be exempt from reporting to the tax authorities in Israel for 10 years from the time they made aliya,” said lawyer Shira Shein, adding that any changes should only apply to new immigrants, and not retroactively.
Earlier in the day, Lapid reiterated his call for the budget to represent the needs of the “working man.”
“Eighty-two percent of the tax payments in the country come from working people. In order to help the disabled, Holocaust survivors, the unemployed, single mothers, an 11- year-old girl with CP [cerebral palsy] removed from school because she cries all the time, we need people to work and make a living here, live well and pay taxes,” he said at the conference.
“The Israeli middle class is not angry about the taxes it pays to the weak. It is angry because it feels – justifiably – that over the course of many years, its tax money was treated disrespectfully; that instead of helping the weak, its taxes went to sectors, irresponsible tycoons, interest groups, extraneous government offices, to a political establishment that cared only about itself. So our task is to change that and create a fair system,” he said.
Among the projects he promised to take on in the new budget were: extending railways to Carmiel; fixing hospitals; opening technology training centers with the Israel Manufacturers Association; and reforming dairies and the Israel Lands Authority.
Though the budget’s details were not yet public, Channel 2 reported that income tax would go up 1.5% across the board, NIS 4b. would be cut from defense, child allowances would be reduced NIS 140 million, dental benefits would be trimmed and health costs would increase.
Lahav Harkov contributed to this report.