Israel's Minister of Finance Moshe Kahlon will wait an additional few months before deciding on whether to make further tax cuts, officials in the Ministry of Finance believe. Kahlon told Channel 10, "If I can I will continue to lower taxes. We must cut them down to a minimum, both income tax and VAT, where we can."
The possibility of tax cuts is likely to put Kahlon on a collision course with economists at the Bank of Israel and Governor Karnit Flug who think that taxes should be raised. With this difference of opinion in mind, Ministry of Finance officials today criticized their Bank of Israel colleagues saying, "Those calling for taxes to be raised are the same people that called for taxes to be raised in 2015 and claimed that the deficit would be 3.4%, when in fact the year actually ended with a deficit of 2.1%.
The Bank of Israel admitted today in its monetary policy report that it underestimated government revenues by NIS 6 billion in its 2015 forecast.
Kahlon has in the past attacked the economists forecast within the context of tax hikes. For example at the Globes Israel Business Conference in Tel Aviv in December he told "Globes" editor-in-chief Hagai Golan, "Look at what a mistake was made here. If I had raised taxes by another NIS 6 billion and not lowered them, we would have had a surplus of NIS 24 billion. Why shouldn't that money remain with the public and grow the economy? What do I need it for at the Ministry of Finance."
In response to the Ministry of Finance's stinging comments, the Bank of Israel said today, "Bank of Israel officials suggest that the anonymous sources at the Ministry of Finance that said these things to "Globes" should focus on facts: the Governor did not call for taxes to be raised in 2015, and in 2016, as is known, the problem has been solved by raising the deficit target and the Ministry of Finance's own numerator shows the depth of the hole the government will need to cope with in 2017."
Tax collection in January totaled a record NIS 27.4 billion, 8% more than in January last year and NIS 1.9 billion above forecasts. As a result the Ministry of Finance had a NIS 3.9 billion surplus and the deficit over the past 12 months is 2.2%.
Published by Globes [online], Israel business news - www.globes-online.com - on February 8, 2016
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