In the face of a burgeoning budget deficit that Finance Minister Yair Lapid has dubbed a “monstrous overdraft,” the treasury has been mulling a series of planned cuts and other measures, including raising the mandatory retirement age and increasing the general sales tax.
Building on a plan already put into place before the new government was formed on March 18, the Finance Ministry may seek in the new budget a phased increase in retirement age, from 67 to 70 for men and from 62 to 65 for women, to begin in 2020.
The ministry also plans to raise VAT (value-added tax) to 18 percent, a 1% increase from the current 17%; raise corporate taxes; and institute measures to improve enforcement of tax collection.
Mandatory IDF service for men may also be reduced from 36 months to 28. Service for women would remain unchanged at 24 months.
In addition to an announced NIS 5-billion cut in the defense budget, the Treasury also plans to cut some NIS 3 billion from public sector wages and NIS 3.5 billion from government child allowances.
Large public works projects will also be put on hold, including the widening of Highway 1 (the main Jerusalem-Tel Aviv route), the construction of the Tel Aviv light rail, the expansion of the national rail system into areas outlying the big cities, and reconstruction work in the wake of the devastating 2010 Mount Carmel fire.
The proposed cuts are likely to encounter opposition, warned Histadrut Labor Federation leader Ofer Eini. “All one-sided actions will be resisted,” he was quoted by Yedioth Ahronoth as saying on Wednesday. “If they want to raise the retirement age, they need to talk about this with us and not decide unilaterally.”
Shortly after becoming finance minister two weeks ago, Lapid said that his first meeting with treasury officials revealed to him that the country was facing a “monstrous overdraft,” which he would devote his first year in office to lowering.
Treasury officials recently said that Israel was facing a larger deficit than originally thought — 4.2 percent instead of 2% — necessitating further tax raises and ministry budget cuts. Lapid warned that painful cuts would be necessary in order to balance Israel’s budget.
The new government has six months to present a national budget and get it approved by the Knesset, a highly contentious issue that was a key factor in the dissolution of the last government and the resulting elections.
Joshua Davidovich contributed to this report.