Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon announced a reduction in the sales and corporate taxes on Thursday, a move criticized by Bank of Israel Governor Karnit Flug.
Netanyahu and Kahlon said that value-added sales tax would be lowered from 18 percent to 17 percent beginning on October 1. The corporate tax was set to be slashed from 26.5 percent to 25 percent starting January 2016.
According to Channel 2, the tax reduction will cost the state some NIS 6.5 billion ($1.6 billion).
The TV report said Flug immediately announced her opposition to the tax reduction.
In a joint press conference with Kahlon, Netanyahu said the move is designed to act as a “growth engine.”
The announcement comes amid mounting indications that the Israeli economy is slowing down.
“We believe in you, we believe in the free market, we believe in freedom,” Netanyahu said.
“I think this will help growth, I think this will give the economy the boost it needs,” the prime minister added. “At a time when we are hearing about global slowdown, and here too, we want a growth engine, and lowering taxes is one of them.”
Kahlon said that if an additional surplus was found after the reductions, taxes would be further lowered.
The announcement came a day after the Knesset approved the first reading of a two-year budget.
In a special recess gathering, after hours of debates, lawmakers voted on the 2015-2016 budget proposal — called the largest ever — with 57 in favor and 53 opposed.
The VAT reduction was initially included in the biennial budget, but was removed at the last minute, reportedly at the request of Netanyahu.
If any part of the budget gets voted down, under law the Knesset must go to elections. It is not yet known when the second and third readings of the law will take place, but to avert new elections it must pass before November 19.