Meitav: Government will be forced to raise taxes

Investment House Chief Economist Ron Eichel says move will come despite election year to cover growing budget deficit.

Money cash Shekels currency 521 (photo credit: Reuters)
Money cash Shekels currency 521
(photo credit: Reuters)
The government will have no choice but to raise taxes soon to cover for its growing budget deficit, despite the public backlash it could suffer with elections around the corner, Meitav Investment House Chief Economist Ron Eichel said Monday.
The deficit stood at NIS 4.3 billion in March, the highest recorded in that month in 12 years, although it stood at only NIS 1b. for the entire first quarter of 2012, Eichel wrote in his weekly report on the economy.
Eichel said the deficit was expected to reach 3.5 percent of GDP this year – 1.5% above the government’s target – but warned that the Treasury would have an even tougher time sticking to the 2013 and 2014 targets of 1.5% and 1%. The deficit should reach NIS 17b. in 2013 when taking the current budget into account, he said, although he added that this would be moderated somewhat by the expected improvement in economic growth.
The government increased income tax for the top bracket from 45% to 48% and imposed a flat 2% high-earners tax on all yearly income exceeding NIS 1 million, under reforms recommended by the Trajtenberg Report on socioeconomic change last year and implemented on January 1.
Taxation for median-income earners decreased from 23% to 21%, capital gains tax and company tax rose from 20% and 24% respectively, to 25%.
The Bank of Israel also addressed the deficit in its publication of the minutes of its discussions prior to setting the April interest rate. It pointed out that total tax receipts in the first two months of the year were NIS 1.3b. above the seasonal path consistent with the tax revenues forecast in the budget, and were consistent with a deficit of 3.4%. It said the “better- than-forecast receipts” were mainly due to one-time revenue in January.
The central bank kept its benchmark interest rate unchanged at 2.5% in April, saying that it expected the economy to pick up, and inflation to remain within the 1%-3% per annum target range.