Prime Minister Benjamin Netanyahu on Wednesday made a first public reference to Finance Minister Yair Lapid’s budget proposal, voicing his support for a series of tax hikes and deep cuts meant to reduce Israel’s burgeoning deficit.
“I have no intention of interfering with the budget as it was submitted to the Cabinet, other than one issue that remains open and must be resolved — the defense budget,” said Netanyahu, who is in the midst of a state visit to China. Rumos had circulated that he intended to revoke some of the harsher budgetary measures.
Lapid had proposed scaling back defense expenditure by NIS 4 billion ($1.12 billion), among a range of cuts to government services. Throughout his time in office, Netanyahu has stressed the critical, existential nature of security threats to Israel — especially from Iran’s nuclear program — and the need for a robust military.
On Tuesday, Lapid signed a decree to immediately put into effect a raised sales tax on cigarettes, rolling tobacco and cigars. The finance minister, under fire for the budget plan, also imposed a 10% tax on cigarettes held in stock by suppliers. At midnight, following Lapid’s order, the price of cigarettes rose by NIS 2.5 to NIS 3 per pack. The move is expected to raise an additional NIS 800 million per year.
The Finance Ministry also raised value-added tax by 1 percent (to 18%), increased income tax by 1.5% across the board, and boosted corporate tax to 26%, among other measures.
The ministry is looking to cut government spending by some NIS 6.5 billion (almost $2 billion) in 2013 and by NIS 18 billion (some $5 billion) in 2014, largely through the cuts in defense, child benefits (NIS 2 billion or $560 million) and transportation infrastructure projects (NIS 1.2 billion or $336 million).
Lapid defended the austerity plan as a painful but necessary measure to rein in the deficit and prevent further financial troubles down the road.
“Yes, it’s tough,” he said. “We knew it would be tough… It’s tough and people are angry, but that’s the definition of taking responsibility: To do what’s tough, fully knowing that people will be angry with you.”
The finance minister, who ran on a platform that called for a stronger middle class and lower cost of living, maintained that budget cuts and tax hikes were the only way to avert “the collapse of the economy.”
Opposition head Shelly Yachimovich skewered the government plan, calling it “sheer cruelty” and accusing Lapid of abandoning the public.
“This is not a growth plan, this is not hope, it’s depression and blows,” Labor party leader Yachimovich said at a press conference Tuesday. “It is sheer cruelty and traitorous to the public and a severe economic mistake that will bring the economy to a standstill.”
“I started perusing the economic plan that was published today, and I must tell you that page 7 is simply fabulous,” said Zahava Gal-On, the leader of the left-wing Meretz party. “It talks about hope, and a free society, about an equitable distribution of the economic burden. But that’s where the plot thickens, and I recommend that you don’t read the rest of the pages — which deal with taking out the education system, driving young couples out of the country, and increasing social disparity — before bedtime. Stephen King, you have competition.”
The plan is due to be debated by the Cabinet next week and will be subject to revisions before it is presented to the Knesset for review, after which it will be sent to the Knesset Finance Committee for further revisions before being formally presented to the Knesset for final approval.