Budget draft includes tax hikes, deep slashes

The Finance Ministry on Tuesday finalized its 2013-2014 budget proposal, which includes slashes in government spending and increased income, sales and corporate taxes.

The proposal aims to increase government revenue by raising sales tax by 1 percent (to 18%), raising income tax by 1.5%, increasing corporate tax to 26% and imposing a further “luxury tax” on alcohol and cigarettes.

The ministry aims 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 cuts in defense (NIS 4 billion or $1.12 billion) education (NIS 1.5 billion or $420 million), child benefits (NIS 2 billion or $560 million) and transportation infrastructure projects (NIS 1.2 billion or $336 million).

The proposal also cancels sales tax exemption for tourists; requires stay-at-home spouses to pay their own health insurance fees; raises taxes on pension funds for those who gross NIS 15,000 ($4,200) a month or more; increases property taxes for those who own a second apartment; and imposes manpower cuts and reductions in overtime pay in the public sector.

The salaries of MKs, judges, and the president, will see a 10% reduction, as well.

According to the Finance Ministry, the proposal aims to bring the deficit for 2013 down to 4.65% and reduce it to 3% in 2014. 

Shortly after the austerity measures were announced Tuesday, Finance Minister Yair Lapid took to Facebook to mollify a concerned public.

“Yes, it’s tough,” he wrote. “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 at 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.”

“Sometimes what’s tough is also what’s right,” he added, emphasizing that “for the first time in decades it isn’t only the middle class that’s paying the price,” and the government was also increasing corporate taxes and tariffs on luxury items, “sectors that in the past enjoyed political immunity.”

Lapid concluded that “when times are rough, you have two alternatives: You either choose to be alone, or [you choose to] overcome it together. We’ll overcome this together, and we’ll be better off for it.”

The left greeted the new plan, and Lapid’s rhetoric, with derision.

“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, a months-long process.