Cabinet to vote on VAT, income tax hikes

Liberman’s agreement to back budget cuts, increases in levies not an indicator of party’s support for 2013 budget, sources say.

July 29, 2012 00:54
2 minute read.
PM Binyamin Netanyahu with Yuval Steinitz

Netanyahu Steinitz 390. (photo credit: Reuters)

The cabinet will vote Monday on whether to increase income tax for above-average wage-earners and raise the value-added tax by 1 percentage point to 17 percent.

The moves are part of a series of steps the government says will boost state revenues by NIS 14 billion next year.

Under the proposal, tax for the fourth-highest income bracket, those earning NIS 8,881-NIS 14,430 per month, will increase from 21% to 22%.

Tax for the second- and thirdhighest income brackets will also rise 1 percentage point, to 30% and 33%, respectively. Tax for the highest and two lowest income brackets will remain the same.

Finance Minister Yuval Steinitz announced the proposed income tax increase on Friday, three days after he and Prime Minister Binyamin Netanyahu said they planned to increase VAT immediately and implement an across-the-board NIS 700-million cut to government ministries. Purchase tax on cigarettes, cigars and alcohol increased midnight Wednesday. The government also plans to collect NIS 3 billion that large corporations owe the state.

Sources in Yisrael Beytenu said on Friday that party chairman Avigdor Liberman’s agreement to support the tax increases and budget cuts planned for Monday’s cabinet meeting were not an indicator that the party would back the 2013 state budget when it comes to a vote later this year.

The prime minister’s associates have hinted in closed conversation that Netanyahu sees Monday’s vote as a bellwether for how hard it will be for him to pass the budget.

The vote on the budget is seen as the indicator of whether Netanyahu will need to initiate an early election. If he sees that he cannot obtain enough support to pass the budget, he is expected in October to initiate an election that will be held at the beginning of 2013.

But if he can get Yisrael Beytenu (15 MKs), the Independence Party (5 MKs) and Habayit Hayehudi (3 MKs) to support the budget, and convince a few opposition lawmakers to abstain, Netanyahu may be able to complete his term, which is set to end on October 22, 2013. The only cabinet members who have said they will vote against Steinitz’s plan on Monday are the four ministers from Shas.

Shas traditionally votes against the state budget in the cabinet, whether or not it is in the coalition.

Labor Party chairwoman Shelly Yechimovich on Friday mocked the prime minister for his spate of recent “contradictory” economic policy announcements.

“You could get dizzy from all of Netanyahu’s contradictory economic decisions in the past three days,” Yechimovich said.

“One day he’s lobbying for a tax on the rich, the next day he drops it. One day he levies a VAT [increase] and condemns income tax with all his might, and the next he levies an income tax [rise]. One day he says there are no free lunches and the next he tries to placate the public and say families will have more money after the cuts,” the former opposition leader continued.

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