Finance Minister Yair Lapid conceded on Wednesday that the bevy of taxes and
cuts in his budget proposal were a blow to the middle class and the working man
he made the center of his campaign, but maintained he has no choice if he wants
to prevent the “collapse” of the economy.
“I think there’s something
legitimate in the anger directed toward me – we’re hurting people in their
pockets,” he said in Jerusalem, at his first press conference since releasing
the draft 2013-14 state budget.
“I’m also upset by the situation,” he
continued. “I wish I could stand here and say what goodies I was giving out to
the nation,” but “I’m not willing to get to the situation of Greece.”
budget, which the cabinet will discuss on Monday, increases value-added tax
(starting next month) from 17% to 18%; corporate tax from 25% to 26% (in 2014);
and income tax across the board by 1.5 percentage points (in
“Responsibility means sometimes doing the unpopular thing because
it’s the right thing to do,” Lapid said.
“Everyone wants to fill the
deficit, but everyone wants someone else to pay for it.”
He said that by
also taxing the rich, corporations and luxury goods, he had kept his campaign
promises, and that his budget had more “distributive justice” than previous
Even if things are tough now, he argued, the government’s effort to
bring down the cost of living and reform the economy will make everyone better
off down the line.
Standing next to Lapid at Wednesday’s press conference
was a somewhat defeated-looking Ofer Eini, chairman of the Histadrut labor
federation. The finance minister said secret negotiations between the two men
had resulted in NIS 1.5 billion in budget cuts and prevented a strike that would
cost the economy NIS 2b. a day.
“Even the workers understood they needed
to take part in these cuts,” Lapid said, though he noted that discussions on
nurses’ and doctors’ salaries, ports and the Israel Electric Corporation were
ongoing. “We prevented an unnecessary war in a tough period.”
called the negotiations among the toughest he’d participated in, said he
understood “that we also have to bear the burden” because “Israel is in an
economic crisis, of that there’s no doubt.”
He did not, however, walk
away from the table emptyhanded.
Eini convinced Lapid to maintain the
agreement for contract workers, and increase both pension contributions and the
minimum wages for them starting in July. He secured a 1 percentage point
increase in the level of state contributions for public sector pensions (from
19.5 percent to 20.5%) as of July 2015.
Though wage increases were frozen
for a year, social benefits would still be calculated as though they had
Tax-free education funds (kranot hishtalmut), an expensive
budgetary sticking point that outside experts often cite as wasteful, will be
expanded to cover university and college students in 2014, allowing those who
work in the public sector to begin contributions from their first day of work.
Employers will contribute 7.5% of pay to the students’ 2.5%.
agreed to postpone wage negotiations for a year, until the summer of
He said that there was agreement on most of the substantial reforms
for the Israel Electric Corporation that he called “so, so important for the
economy,” but added, in a challenge to Lapid, “There hasn’t been anyone in the
government who’s been able to advance it.”
Meretz leader Zehava Gal-On
blasted both men on Wednesday, saying “Lapid’s program will annihilate the
working man” and that “Ofer Eini sold Lapid industrial quiet at the expense of
the weak workers.”
A Shiluv poll broadcast on Channel 2 found that 50% of
respondents consider Lapid’s appointment as finance minister a mistake, while
only 28% believe he was the right choice.
Among Yesh Atid voters, 28%
said they would not vote for the party again, while 47% said they
Turning to the Law for the Encouragement of Capital Investment,
which a recent report revealed led to four companies receiving 70% of all tax
breaks and paying virtually no taxes, Lapid said an orderly process was
necessary and that the law could not be changed retroactively.
that allows the companies to take all the breaks is not a good one,” he said,
but if Israel starts reneging on legal agreements, companies would not want to
do business in Israel and “there won’t be another Intel.”
generally shrugged off the budget proposal, some analysts warned that it would
hit the economy hard.
“In our opinion, the policy the Treasury expressed
in the economic program doesn’t encourage growth, and will lead us to lower our
growth forecasts for the economy for 2014 should it be put in effect,” said Ofer
Klein, head of the economic and research division of Harel Insurance and
The main reason was that higher income tax and VAT and reduced
benefits all lead people to spend less, and private consumption comprises 60% of
GDP in Israel, Klein said. But, he says, there are two sides to every
“It’s also clear to us that an additional sin of the deficit
target can lead to a downgrade in Israel’s credit rating, so action is needed.
In our opinion, if the Finance Ministry will commit to reducing the tax levels
to their prior limit in a reasonable period of time, and the public will believe
them, it will be possible to limit the damage to the private consumption and
growth to a minimum,” he said.Gil Hoffman contributed to this report.