Israel’s cabinet is expected to vote today on whether to increase income tax for above-average wage earners and raise the value-added tax by 1% to 17%. The moves are part of a series of steps that the government claims will boost state revenues by NIS 14 billion next year.
Other than raising taxes there is to be an across-the-board 5% cut in ministry spending. Government officials have said these cuts are necessary to fund projects such as a fence on the Egyptian border, as well as upgrades to the fire-fighting and civil defence systems.
Most of the cabinet is expected to vote in favour of the cuts, with the only definite no votes coming from the ultra-Orthodox Shas party. Shas chairman and Interior Minister Eli Yishai demanded that the VAT be lowered on water, electricity and bread. “Raising taxes will harm thousands of families in Israel, who have already been hurt by the increasing cost of living,” Yishai warned on Sunday night.
Labour chairwoman Shelly Yechimovich released data compiled by her office that show that 67% of the government’s planned tax increases are regressive, thus affecting poorer people more than the rich.
Meanwhile, Bank of Israel Governor Stanley Fischer reiterated his praise for the government’s steps in a statement late on Saturday, calling them “necessary” to deal with the dual threats of the Euro’s collapse and a spiralling budget deficit.
Cabinet debate on the following year’s budget is usually concluded by the end of July each year. This year, however, the debate has not even started. Moreover, discussions held with the ministries on their budget demands, including the Defence Ministry, have yet to take place. The Defence Ministry usually claims a major share of state spending, but it is not clear what the ministry will demand next year in terms of additional budget items.
As consultations with the ministries have not yet begun, more cuts at some ministries, or more taxes, are likely to be announced for next year. Finance Ministry officials acknowledged this yesterday, stating additional tax measures could not be ruled out for next year.