Finance Minister Moshe Kahlon.
(photo credit: MARC ISRAEL SELLEM)
Finance Minister Moshe Kahlon must present an updated budget to the Knesset Finance Committee if he wants it to approve his new tax cuts, opposition MKs demanded Thursday, but the committee cut value-added tax from 18 percent to 17%, anyway.
Kahlon was supposed to present the budget to the committee on Monday, but canceled his visit in light of the VAT cut, which came after his announcement last week that the Finance Ministry had discovered a tax surplus. On Tuesday, he announced cuts to taxes on beer and hard liquor. All of these changes require the December 2015-2016 budget, approved in a first reading in the Knesset last week, to be updated.
According to MK Erel Margalit (Zionist Union), the entire process of presenting the budget and lowering VAT was improper.
“It is wrong to decide to lower VAT two days after the budget was approved in the Knesset...
We have to be fiscally responsible and cannot approve a move that will drastically lower our income by almost NIS 5b... without seeing the full picture,” he said.
MK Mickey Levy (Yesh Atid), a former deputy finance minister, said that sending senior bureaucrats is not enough.
“The Finance Minister is trying to run away and not appear before the committee; this is unprecedented,” Levy, who has been an MK for two-and-a-half years, claimed. “This is not how a serious discussion is held.”
MK Roy Folkman of Kahlon’s Kulanu party said that in most Western countries, the government’s spending is not connected to its tax income, and that there is economic logic behind this. As such, he added, there is no need for the VAT vote to be connected to meetings about the budget.
Finance Committee chairman Moshe Gafni (UTJ) said that while he does not think it is right to make a drastic change to VAT two days after the budget vote, it can be done at any time, and he will not hold meetings about the budget until the Finance Ministry presents updated numbers.
The committee’s legal adviser Sagit Afik said that the bureaucrats’ appearances before the committee is enough for it to vote on lowering VAT.
The Finance Committee’s chief economist Yoel Naveh promised that the calculations and an updated budget would be presented to the committee soon.
“We will present the budget soon,” Finance Ministry director- general Shai Baavad said.
“The Finance Minister will come to the Finance Committee with the full forecast for income in 2015 and 2016.”
The cut in VAT will go into effect on October 1 and will cause a loss of NIS 4.5b.-NIS 4.8b. in the government’s income from taxes.
Gafni expressed skepticism that the change will meet Kahlon’s stated goal of causing prices to be lowered and said the money could have been used to increase child allowances.
Baavad said that, while he knows Bank of Israel Governor Karnit Flug voiced opposition to the tax cut, Kahlon and Finance Ministry professionals decided that it is a good move at this time.