Bar-On backtracks on tax reform

Plan to tax savings in advanced-training funds canceled over 'political instability' in face of Histadrut threat of mass strike.

Bar On number 88 224 (photo credit: Ariel Jerozolimski)
Bar On number 88 224
(photo credit: Ariel Jerozolimski)
Finance Minister Ronnie Bar-On on Wednesday agreed to cancel a controversial plan to tax savings in advanced-training funds, bowing to pressure from the Histadrut Labor Federation and economic organizations who had threatened a general strike in the public sector. "Out of personal responsibility for economic stability, I concluded that it would be proper, in a situation of political instability and under the current economic situation, to safeguard the economy from another crisis including a strike action and upheavals in the labor relations of the economy," he said. "I made a mistake regarding the timing and the assessment of the political situation, and believed that we could advance the tax plan in its entirety in spite of the components on which there were disagreements. I believed that we could advance the reform through negotiation." Bar-On said the decision to cancel the tax plan, a proposal that was announced about two weeks ago, was taken at a meeting with ministry officials on Wednesday morning. "There are difficult challenges ahead of us," he said, "but we must continue to maintain economic stability and conduct a responsible economic policy despite the political instability." In mid-June, the Histadrut declared a general work dispute and threatened to stage a public-sector strike at the end of the month unless the Finance Ministry backtracked from its tax reform plans. Histadrut chairman Ofer Eini warned that if Bar-On did not change his plan within two weeks, the union would launch a general strike in the public sector, and the entire responsibility would fall on the finance minister. He accused Bar-On of taking a unilateral decision to cancel collective labor agreements that included an exemption from taxes on advanced-training funds (kranot hishtalmut). Shraga Brosh, chairman of the Federation of Israeli Economic Organizations, supported Eini's stance. The ministry's multiyear tax scheme aimed to gradually lower personal income tax and corporate tax, from next year through 2015, while lifting the tax exemption on advanced-training funds to finance the plan. Under the framework of the reform, which was planned to start in 2009, the amount that an employer pays into a worker's training fund would have been added to the worker's gross pay for tax purposes. Employer deposits into advanced-training funds would have been accounted as regular income for tax purposes, which could have increased monthly income tax payments by hundreds of shekels. The Treasury justified the plan by saying just 37 percent of all employees currently receive advanced-training funds, and 87.5% of the exemptions benefit the top 3% of income earners.