Cabinet approves Sheshinski proposals on gas, oil

After Netanyahu decided to adopt committee's recommendations, government's take on gas, oil discoveries will rise from 33% to 52-62%.

By SHARON WROBEL
January 23, 2011 15:22
2 minute read.
Eytan Sheshinski and Yuval Steinitz.

Sheshinski and Steinitz 311 . (photo credit: Marc Israel Sellem)

The cabinet on Sunday approved the Sheshinski Committee’s proposals to raise taxes on gas and oil profits following the recommendation of Prime Minister Binyamin Netanyahu.

“The natural resource is also important to Israel’s economy and to Israel’s future,” Netanyahu said at the cabinet meeting. “Regarding the latter, I intend to establish a fund for Israel’s future that will be devoted to education and security.

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The fund’s revenues will come from the natural-gas reserves.

“We will cooperate with the investors to bring the gas to Israel quickly. The most important thing now is to move forward, and I believe we have the support of a majority of ministers.”

Twenty-one ministers voted in favor, including those from the Likud and Shas, while five from Israel Beiteinu voted against.

Netanyahu said an interministerial team would be established to consider ways to deal with the macroeconomic aspects of revenues derived from natural resources.

Netanyahu opened the meeting by reiterating his support for the Sheshinski Committee’s recommendations. He announced that the government would share half of the security costs for maritime gas and oil installations and reserves. This will be for security installations requested by the Defense Ministry.

“What needs to be done now is to take a decision so we can pass the matter on for the approval of the Knesset,” Netanyahu said.

Netanyahu decided last week to adopt the recommendations, saying the committee had arrived at the proper balance between giving the public with a fair share of the utilization of the state’s natural resources and providing appropriate incentives to companies engaged in natural-gas exploration.

The Sheshinski Committee, which published its final recommendations at the beginning of the the month, decided to leave the rate of gas royalties at 12.5 percent, while implementing alternative fiscal tools for the purpose of increasing the state’s share. It proposed a progressive tax on gas and oil profits, starting at 20% and gradually rising to 50% according to the amount of excess profits. As a result, the share of the net profit for the state and public will increase from one third to 52%-62%.

“We have taken another important step en route to correcting a distortion in the taxation system for the state’s natural resources,” Finance Minister Yuval Steinitz said at the cabinet meeting.

“We are nearing the moment at which the Israeli public will be able to benefit from its natural resources the way it is done in other Western countries.”

The recommendations are expected to be passed by the Knesset over the next few weeks, after opposition leader MK Tzipi Livni on Sunday expressed support despite some reservations regarding the inclusion of the Tamar gas find in the new tax regime.

“With regard to the Tamar discovery, there are reservation in principle about changing the rules set by the government, after money was invested in the project,” she said. “Nevertheless, the conclusions reflect a proper balance between encouraging local and foreign investors to invest in Israel and the basic right of the state to be a partner in the potential profits from its assets. The state’s revenue should not be put in the regular budget, but ought to be deposited in a special fund, which will be invested in education.”


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