Budget overhauled as taxes, spending slashed

Housewives tax canceled, child allowances untouched and planned tax increases are restructured; taxes on public companies to rise.

Lapid at Finance C'tee meeting 370 (photo credit: Knesset)
Lapid at Finance C'tee meeting 370
(photo credit: Knesset)
Finance Minister Yair Lapid and Knesset Finance Committee chairman Nissan Slomiansky agreed on Wednesday to restructure planned tax increases for the 2013- 2014 budget – laying out a more progressive income tax scheme, scrapping controversial tax hikes and slashing government spending.
“We successfully changed the tax map. In an unprecedented way, we canceled difficult cuts and tax hikes that would have hurt the middle class and weaker sectors,” Bayit Yehudi’s Slomiansky said following negotiations with Lapid and Yesh Atid faction chairman MK Ofer Shelah.
Instead of increasing income taxes 1.5 percent across-the-board as originally planned, the tax will rise only 1% for those earning under NIS 14,000 a month; remain at a 1.5% increase for those making between NIS 14,000 and 21,000; and grow 2% for incomes over NIS 21,000.
An unpopular tax that would affect housewives was eliminated, as was a tax for homeowners seeking to buy new apartments.
Tax credits for academics would also change, leaving one tax credit point for undergraduates and a half-point for masters students a year after graduation.
Child allotments affecting kids born after 2003 would remain untouched.
In order to maintain the planned budget deficit of 4.65% for 2013 and 3% for 2014, however, other changes had to be made to offset the new plan’s fiscal effects.
Every ministry’s budget would be slashed by a half-billion to a billion shekels, and the Education Ministry and Transportation Ministry would have their budget increases reduced by half a billion shekels.
In addition, taxes on land purchases would rise to 6% from 5%, except for private purchasers who complete building residences within three years. Taxes on public companies’ dividends will increase by a half billion shekels.
After moving around approximately NIS 3.5 billion however, the committee said more changes would have to be made, as the new scheme still fell some NIS 1b. short of the deficit target.
The finance committee began voting on the budget and the Economic Arrangement Bill’s many articles, including the new changes, on Wednesday afternoon. The committee meeting continued until after press time, with opposition MKs dragging out votes in an attempted filibuster.
“We prevented harm to housewives and harm to the middle class by changing income tax structure so only the biggest earners will be harmed. In addition, we made the government seriously cut ministry budgets,” Slomiansky explained.
The finance committee chairman called the changes an “unprecedented achievement in light of the Finance Ministry’s aim to raise taxes and cut services to the whole public. Now, together with the Finance Ministry, we will examine ways to fix this, to close the deficit and reach fiscal goals, while keeping financial stability and strength in the market and taking care of the entire public.
“These agreements improve the budget. The steps we agreed upon ease the burden on the weaker sectors and middle class while staying within the budgetary framework and allowing growth in the coming years,” Shelah continued.
MK Gila Gamliel (Likud Beytenu), the coalition coordinator in the finance committee, said that “the new budget is undoubtedly different from the original proposal.”
Referring to her threats to vote against parts of the budget, Gamliel said, “At first, I was one of the few who refused to raise a hand in favor [of the original budget plan], but this became the consensus.”
Gamliel added that Finance Ministry bureaucrats clearly understood that the budget could not be passed as they proposed it.
“Not only am I happy they accepted my stance, I’m glad they understood the public opinion of Israel’s citizens. We cannot pass a decree that the public cannot withstand,” she stated, paraphrasing the Talmud in Tractate Bava Kamma.
Construction and Housing Minister Uri Ariel praised the cancellation of taxes on people buying homes.
“This was a bad tax for the housing market, which I voted against in the government,” Ariel said.
“I said many times that it is logical to cancel the tax, which undermines steps to lower housing prices. The government is totally committed to lowering housing prices, and it proved this yet again.”
Knesset Committee for the Advancement of Women chairwoman Aliza Lavie (Yesh Atid) praised the Finance Ministry and the finance committee for canceling the tax on housewives.
“The topic of housewives is close to my heart,” Lavie explained.
“In recent weeks, I learned it in depth in the Committee for the Advancement of Women and presented a detailed position paper to the finance minister, who showed great sensitivity on the topic and did all he could to try not to hurt housewives.”
The opposition still found fault with the budget, with Labor submitting 1,400 objections to it and another 50 to the Economic Arrangements Bill on topics ranging from corporate tax to reform in mental health services.
Opposition leader Shelly Yacimovich (Labor) said, “Our battle and the public’s high level of involvement on these topics bore fruit and Lapid had to bend and cancel tax increases, but Lapid and [Prime Minister Binyamin] Netanyahu’s plan to put the burden on the middle class and the poor while giant corporations enjoy exemptions still exists.”
According to Yacimovich, there is still a “harsh general picture,” and the middle class and poor will still face tax hikes and budget cuts that will make their lives more difficult.
Yacimovich brought as an example Lily Ben-Ami, a teacher who ran in the Labor primary whose husband is an engineer, and said they will have to pay annually NIS 2,400 more in income tax and NIS 1,500 more due to the raise in VAT. Moreover, they will receive NIS 2,000 less in child allotments and lose NIS 600 in tax benefits.
Altogether, they will lose NIS 6,500 in the next year.
“This is a partial list. We didn’t talk about payments to their children’s schools, which will increase, and that a longer school day will not be implemented for five more years and more.
The Ben-Ami family is one of hundreds of thousands of similar families,” Yacimovich said.
Shas leader Arye Deri praised opposition parties for succeeding in their “joint, determined battle that led the finance minister to fold and reduce cuts.”
Deri called on Netanyahu and Lapid “to have mercy on the middle class and weaker sectors and find alternatives to the cuts that are still a major blow to the Israeli public.”
“The steps taken in the Finance Ministry prove yet again that the Finance Ministry’s plans are not Godgiven [and can be changed],” he added.
MK Itzik Shmuli (Labor), one of the leaders of the 2011 housing protests, said that despite the cancellation of the tax on homeowners buying new houses, the budget is still cruel and will increase poverty.
“At least we successfully neutralized some of the most unjust and bizarre parts [of the budget],” he stated. “The finance minister woke up and understood that in a difficult economic time, he cannot squeeze most Israelis in such a harsh way.”
Meretz MK Ilan Gilon complained that Lapid made the public “walk down the Via Dolorosa before reaching the obvious conclusions.”
“The government still avoided increasing spending on health, welfare and housing,” Gilon said.
“At the end of the day, the burden on the strongest people still perpetuates an irresponsible economic system that will increase inequality in society.”