Education, welfare, and the military will be spared from across-the-board government budget cuts scheduled to be brought before the Cabinet on Monday, Prime Minister Benjamin Netanyahu said Wednesday in a meeting with officials from the Prime Minister’s Office and the Finance Ministry.
“Managing a national economy is like managing a household,” Netanyahu said. “We must balance expenses and income. It’s impossible to spend everything. Therefore we will make adjustments, but not at the expense of education and welfare.”
The other ministries’ annual budgets will be subject to a five percent cut in an effort to prevent the Israeli economy from plummeting into a recession.
The fiscal reductions are expected to save the government NIS 700 million in the next year.
Netanyahu’s announcement followed his statements Tuesday that the government would have to raise taxes to avert economic trouble, and aimed to implement increases by August 1.
The prime minister’s plan included a hike in VAT (value-added tax) one percentage point, from 16% to 17%. Each percentage-point hike in VAT will bring a revenue of NIS 4 billion, financial news outlet Globes estimated.
At midnight Wednesday night, cigarettes began to be sold with an additional NIS 2.50 tax surcharge per pack, and beer went up by NIS 2 per liter. The increases were slated to go into effect August 1 — but Finance Minister Yuval Steinitz decided to implement it early because of reports that people were beginning to hoard cigarettes and beer. The additional taxes will generate an estimated NIS 1 billion in revenue per year.
Labor Party chairwoman Shelly Yachimovich criticized Netanyahu’s decision on Army Radio, saying, “There’s a deep hole in the budget, which Netanyahu created with his own hands by cutting taxes for the rich. He now has to fill the hole by raising VAT, which is a stupid tax that everyone pays, even the poorest people.”
Shas chairman Eli Yishai said his party would oppose the budget cuts, especially those affecting working poor families. In an interview to Army Radio Wednesday, Yishai said, “There is a fine line separating the middle class and at-risk families.”