The government on Monday passed a sweeping measure to tighten Israel’s belt at a time when the world is facing another global financial crisis.
With a vote of 20 to 9, the Cabinet approved a package of austerity measures designed to raise some NIS 14.15 billion within a year, and reduce the budget deficit by 1.5 percent. Voting against the package were the Independence and Shas parties, as well as Likud Social Services Minister Moshe Kahlon.
The measures include raising taxes, increasing fines and cutting budgets.
Tax Hikes and Fines
Extending the “temporary” order issued in February 2011 to raise the purchase tax on investment apartments. A 5% tax on properties costing up to NIS 1 million, and 7% on properties costing NIS 3 million and above, will be in effect until the end of 2013.
The so-called “Green Tax” on sales of vehicles according to their pollution levels is also set to be updated in accordance with Environmental Protection Ministry data.
The purchase tax on cigarettes and cigars was increased – last week – from 260.6% to 278.6%. the purchase tax on beer went up from NIS 2.18 per liter to NIS 4.19 per liter.
In addition the Value Added Tax (sales tax) will rise by a single percentage point to 17% by this Wednesday.
Fines are to be increased on businesses caught making black market deals.
Starting January 1, 2013, income tax will change for everyone except those in the two lowest income brackets – at 10% and 14% — and in the highest income bracket at 48%.
For those in the fourth-highest monthly income bracket (NIS 8,881 – NIS 14,430) taxes will rise from 21% to 22%. Those who make Nis 67,000 per month or more will have their income tax raised by 2%.
Those in the second and third-highest income bracket will have their taxes raised by 1%, to 31% and 34% respectively.
Employer contributions to Bituach Leumi – the National Insurance Institute (NII) – will rise for workers earning more than 60% of the average salary, from 5.9% to 6.5% in 2013, then to 7% in 2014, and then to 7.5% in 2015.
Ministry Budgets Cut
There will be an across-the-board 5% budget cut in every ministry for the remainder of 2012, according to the plan. Next year, budgets will be cut by an additional 3%.
One ministry escaped the slashes – the Education Ministry, which suffered only a 1% cut this year and a 3% cut in 2013.
The cuts are to fund “changes in priorities,” according to Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz.
Some NIS 700 million will be allocated to fund three of those “priorities” –
1. preparing the Home Front for a national emergency
2. reforming the national firefighting system
3. preventing infiltration of illegal migrants from the Sinai Peninsula
Not All Bad News
But Netanyahu promised that any agreement on social action deals resulting from the Trajtenberg Report would stand.
Those include the NIS 800 per month to be saved by some 300,000 families who send their 3 and 4 year old children to free nursery schools, and the new free after-school programs to be implemented in September for children ages 3 to 9.
Close to 400,000 families will also still be eligible to receive hundreds of shekels in tax credits, Netanyahu said.
He also agreed that the package was “harsh” in his remarks at the opening of the weekly cabinet meeting. But, he warned, “Governments that did not act in time, did not take determined action and did not act responsibly caused great harm to their people both in terms of mass unemployment and in terms of crumbling social systems.
“We will not allow that to happen. I will not allow that to happen. We need to act responsibly, with determination and in time.”
Panderer
Bearer of bad tidings
Spending cuts are a good idea. However, raising taxes is a very bad idea. It’s not a good idea to punish success and wealth creators. I thought Bibi was a free market guy.
For a while we had been told that were financially sound and suddenly a heavy hand came down on the already heavily taxed Israeli middle class and low income people.
There has to be something more behind the wham than just re aligning for the EU and US economic tumbling. Unless the EU and US are marked by Central Bank experts as being on the verge of collapse.
We have huge for us cash reserves probably in the region of 80 billion dollars purchased over a period of two plus years by the Central Bank to support the dollar.
The TAMAR natural gas field is about to start production cutting by March hard currency payments to import gas.
I do not doubt at all that given half a chance, the PTB would rip us off without batting an eyelash. Yet, something on the whole sudden onset makes me very uneasy…
I am indebted to Shy Guy and Yamit for sharing their knowledge.
@ Ted Belman:
There is value added tax (sales tax) on everything you buy in Israel except for fruit and vegetables and postage stamps. In the USA, each state has its own sales tax which at the highest is nine percent. Many things are not taxed at all such as essential food, pharmaceutical items and in some states, there is no sales tax on clothing. Over-the-counter pharmaceutical items are at least double but usually triple to four times as much in Israel than in the USA. Some states in the USA do not have any sales tax at all. Instead of raising the value added tax which is already very high, taxes should be raised on tobacco products such as cigarettes and cigars much more than they are raising it now.
@ Shy Guy:
Some Freeies ex-salary, include auto or substantial auto allowance fee telephone free computers free mailings, free trips abroad called Junkets etc. Free English lessons free medical insurance, (covering much more than regular health insurance) and a host of other such perks. Ea. MK if he lasts 2.5 years in the Knesset is entitled to a lifetime pension. That’s why no new MK will rock the boat till his third year in the Knesset.
James B from Canada Said:
Add A + B. I’m sure there’s C, D, E, F and G to add in there as well.
Four legs good. Two legs bad. Snort.
@ Ted Belman:
As usual you conflate two separate issues. The need and wisdom of reducing Government expenditures in line with expected shortfall in revenues and the actual remedial actions BB took.
Almost 60% of Israelis are either on subsistence incomes or close to them. raising Vat raises prices across the economy and directly impacts on the 60% considered poor or on the statistical margins. It especially effects the elderly and those on fixed incomes along with large families. All commercial enterprises raise their prices more than the stated increases by the government. Makes homes and rents more expensive, imports more expensive and exports more expensive etc. Austerity directed towards the poor allowing our Oligarchic Crooks to get off is compounding an already existing crime.
There is no reason why the 60% have to bare the burden of supporting the biggest and most wasteful bureaucracy per capita of any country on the planet. The biggest most wasteful government in Israels history and we have had some big ones in the past. BB bought party loyalty by creating posts that never existed and passed them out like candy to those +who believed might be troublesome in the future. The cost to the tax payer for such a bloated government is in the billions.
In a country the size of America how many Cabinet Posts are there? (Many Americans would like to reduce those as well)
While the nominal rates for our Rich is 48% most through tax loopholes pay little or nothing. Our tax authorities would rather pursue unto death the weak and defenseless rather than to lock horns with the rich and powerful. That would end many a career in public or private service.
Like in America the Goldman’s and the Banksters were not charged or punished for their Massive financial crimes so it is in Israel Corrizine after stealing almost $2 billion of customer funds to pay Wells Fargo seems to have gotten away with it. Bernie Madoff not so lucky because he was stupid enough to steal from the 1%.
BB is a political representative of Israel’s 1% and that should speak for itself.
Note: The Bank of Israel is today sitting on over 110 billion dollars in cash reserves the highest in Israels history. The Bank has already made close to $$$5 billion, since the dollar rise in value.
All BB had to do was to take a billion or two from the profits of our reserves and build the fence,(A 1 time expenditure)instead of penalizing the overtaxed Israeli people and putting more pressure on our commerce and trade which austerity will do. Reducing the number of ministers and deputy ministers would set a visible example.
BB did the easy thing and expects little political fallout but I would support Labor if it meant getting rid of the Likud and especially BB, and I’m sure there ware many more like me with the same feelings. I live in a small town of Dimona with a lot of young families and a lot of elderly. Supporters of BB and Likud can be counted on two hands. After these tax rates hikes and reduction of services not yet announced maybe you will count Likud and BB supporters on 1 hand.
When people are hurting in their pockets don’t look for ideological solidarity or support.
You could knock off 1/4 of the IDF expenditures reorganize and make them efficient enough to cover any budgetary shortfall and have enough $billions left over to reduce taxes on everyone or at least to increase governmental services. The IDF is no longer the Israeli Holy Cow it once was and they are the countries biggest single expenditure and biggest waster of our tax dollars. They are also Israels most powerful internal lobby.
Ted, that patient’s main arteries are clogged!
“Government spending is equivalent to 44.3 percent of GDP. The budget balance has been in deficit, with public debt corresponding to over 70 percent of total domestic output.” – Israel Economy – Facts, Data & Analysis on Economic Freedom
More:
Israelis celebrate Tax Freedom Day on July 9th this year: Once again Israelis work more for the Government than for themselves
All the idiot hippie and yuppy protesters want even more of the same!
Stupid Jews!
I have a different take. I like this budget. It makes a serious inroad to spending with cuts that apply to every ministry. 5% for the rest of this year and another 3% next year. I raises tax on the middle class but not on the super rich which are already paying 48%. But I would remove food and children’s clothing from the VAT if they are not already removed.
Name me a country that acted so aggressively before there were forced to. This is good financial management.
@ yamit82:
Yamit, please help us understand how high the Income taxes are in Israel and what is the sales tax? How is the typical Israeli doing financially? Do most rent or own their own condos, apartments, automobiles..?
Is it true that the typical Israeli politicians earns >> 40,000 NIS a month??
BB raised taxes on everything which hurt the poor and those on small fixed incomes. He gave our Oligarchs a pass and left the largest most expensive government in Israels history intact.
If Romney wins expect much the same in America.
BB is a disaster, but if he is left in place it’s our fault.
My opinion is anyone but the Likud and BB.