Minister of Finance Yair Lapid today submitted his budget proposal for 2013-14 to Prime Minister Benjamin Netanyahu and Governor of the Bank of Israel Prof. Stanley Fischer. He proposes NIS 18 billion in budget cuts and NIS 5 billion in tax hikes, as well as a number of structural reforms.
The budget proposal sets the deficit target for 2014 at 3-3.25% of GDP. This is a compromise between Fischer's demand of a 3% target, and Lapid's wish to raise the target to 3.5%.
Lapid proposes a one percentage point hike in VAT (to 18%), income tax rates, the purchase tax, and the companies tax. On the basis of 2012 figures, the Ministry of Finance estimates that the VAT hike will raise NIS 4 billion per year, the income tax hike will raise NIS 3 billion, the purchase tax hike will raise NIS 1 billion, and the companies tax hike will raise NIS 700 million.
Lapid also proposes cancelling the following tax exemptions: VAT on fruits and vegetables, which will raise NIS 2.2 billion, the exemption on advanced training funds and on provident funds, which will raise NIS 2.4 billion and NIS 2 billion, respectively, betterment tax breaks, which will raise NIS 200 million, and the VAT exemption in Eilat, which will raise NIS 600 million.
This will be a charged session," Lapid told a meeting of Yesh Atid ahead of the opening of the Knesset's summer session today. "This will be a budget session. This is a difficult budget, and we must be rescued from the NIS 35 billion deficit. We cannot hide behind this deficit. We won't say that we came to fix the budget, and now we won't do anything. On the contrary, we will see it as an opportunity that will allow us to change the country's priorities and switch from a culture of welfare to a culture of work, and put the working man in the center without forgetting the poor."
In response to criticism about his concern for the poor, Lapid said, "Empathy cannot replace policy. We need a strong middle class of working people who pay taxes, and we can use these taxes to help those who lack. No child will go hungry in Israel so long as we are here."
He added, "This is a budget of hope. It's true that there will be spending cuts and tax hikes, but they will be of short duration. There has been a breakdown which we must fix. This will be brief. It will come, it will hurt, and it will pass. Within two years, Israel will feel the change - in housing, equal sharing of the burden, in the cost of living, and in the feeling that people are living in a just country which takes care of its money, and does not merely hand it over to sectors and people who are close to the trough."
Published by Globes [online], Israel business news - www.globes-online.com - on April 22, 2013
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