Netanyahu cancels produce tax bid

PM bows to Shas, Labor, Likud MK Regev; Steinitz "still convinced we need a VAT on all products."

mahaneh yehuda protest 248.88 (photo credit: AP)
mahaneh yehuda protest 248.88
(photo credit: AP)
Prime Minister Binyamin Netanyahu caved into pressure from Shas, Labor and Likud MK Miri Regev on Monday when he decided to cancel a proposal to impose value added tax on fruits and vegetables as part of the 2009-2010 state budget. The decision ended days of speculation ahead of key votes on budget clauses in the Knesset Finance Committee. At a hastily called Knesset press conference together with Finance Minister Yuval Steinitz, Netanyahu announced he had decided to cancel cuts to income tax and a tax on companies, instead of levying the produce tax, which was expected to add NIS 1.3 billion to the Treasury's coffers. "A central part of my job is to listen to the public," the prime minister said. Netanyahu received praise for the move from Labor and Shas, but he was slammed by opposition MKs for changing his mind after saying repeatedly that cancelling the income tax cut would harm the economy. "The prime minister does not miss an opportunity to prove that he is weak and cannot be believed," an official Kadima Party statement said. "On both diplomatic and economic issues, his word has no value. He does not care about the public, only about his own political survival." The decision put other clauses of the draft budget and Economic Arrangements Bill into serious question, as opposition and coalition lawmakers said Netanyahu was susceptible to pressure. Hours after the announcement, Finance Committee chairman Moshe Gafni (United Torah Judaism) announced he was postponing the committee vote on the budget that had been scheduled for Tuesday. Gafni, who spent Monday night in a series of last-minute meetings with Finance Ministry director-general Yarom Ariav and other ministry officials, said the delay came because of disagreement within the committee on a number of other key clauses. One of those clauses, the Drought Levy, was the subject of a committee hearing on Monday, during which Shas lawmakers expressed opposition to both the produce and the water measures. But Kadima officials put another spin on the delay, arguing that "Gafni understood that you can pressure Bibi" and was insisting that the legislation bearing his name be included in the votes in order to ensure that it too passes. The Gafni Bill, which mandates local government funds for haredi non-governmental education, passed its first reading last week. The decision to cancel imposition of VAT on the sale of fruit and vegetables was a slap in the face to Steinitz, one of the prime minister's closest supporters. Less than two hours before Netanyahu announced the tax's cancelation, Steinitz had emphasized that by no means would the measure be removed from the budget. But after the decision, Steinitz tried to save face, saying, "I'm still convinced that we need a uniform VAT on all products, but there is only one prime minister in Jerusalem and that is his decision." The decision came after weeks of gradually increasing threats from Shas chairman Eli Yishai, who promised a coalition crisis over the produce tax. "We are ready to vote with the opposition and we are not willing to compromise," Yishai told Netanyahu from the Shas chairman's hotel in the south of France, where he is vacationing with his family. "I will not let there be any tax on fruits or vegetables, not even if it is levied in stages." Sources close to Yishai said that despite his vacation, he spoke with the prime minister three times, with Steinitz five times and made dozens of calls to Shas's representatives on the Finance Committee. "I am happy that the prime minister and finance minister are sensitive to the public's feelings," Yishai said after Netanyahu changed his mind. "The tax would have been a black stain on the laws of our country." Steinitz had claimed to have a majority in the Finance Committee even without Shas, but Netanyahu expressed skepticism. The prime minister reportedly changed his mind about whether to cancel the produce tax several times on Monday. Labor ministers joined the rebellion on Monday morning when Agriculture Minister Shalom Simhon called on Netanyahu to find a way to compensate for the budget shortfall that would result from cancelling the produce tax. "If this tax is levied, 70 percent of produce would be sold on the side of the road and on the black market instead of in supermarkets," Simhon said. "The underworld would end up making a profit and not the state." It was the Labor decision, said Regev, that tipped the scales on the VAT decision. Without both Labor and Shas, the tax had a serious chance of failing, which would have meant embarrassment for the coalition. The one party to which Netanyahu had shown zero tolerance for disobedience on the produce tax is his own Likud. "I cannot accept an MK elected on our ticket not voting with the coalition," he told Regev, who would have been removed from the Finance Committee by coalition chairman Ze'ev Elkin to allow the tax to pass. Regev held a press conference on Monday morning, hours before Netanyahu's decision, in which she said Likud MKs had subjected her to a series of political threats, but that she intended to stand by her opposition to the VAT measure, even at the cost of her Finance Committee seat.