Finance minister scales back budget cuts

Finance Minister Yair Lapid has agreed to soften some of the austerity measures in the budget in a deal with the Knesset Finance Committee that could see his budget proposal approved barely two weeks before the final deadline. The adjustments are designed to slightly reduce the impact of the cuts on lower- and middle-class Israelis.

MK Nissan Solomiansky (Jewish Home), the chairman of the Knesset Finance Committee, gave his approval to the the changes Wednesday, including the revocation of an across-the-board 1.5 percent hike in income tax.

Instead, there will be a 1% income tax increase on monthly wages of up to NIS 14,000 ($3,900) and 1.5% for income between NIS 14,000 and NIS 22,000, while wages above NIS 22,000 a month will be taxed at an additional 2%.

The Knesset approved a first reading of the budget in June but the plan then faced a fresh hurdle in the form of challenges from the Finance Committee.

Lapid also agreed to relinquish a planned tax on the purchase of a second apartment, and instead will impose an altered tax increase on luxury apartment purchases. The current 5% purchase tax on apartments valued at NIS 5 million ($1.39 million) or more will be increased to 6% and applied to apartments worth NIS 4.5 million ($1.25 million) or more.

In addition, a suggested health and national insurance tax on nonworking mothers will not be applied, and cuts in child benefits will be reduced.

The government said it would make up the NIS 3.5 billion ($980 million) it was projected to lose in revenue from the changes to the budget by imposing further cuts in the education and transportation ministries’ budgets.

In May, the Finance Ministry approved a series of austerity measures aimed at cutting 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, child benefits (NIS 2 billion, or $560 million) and transportation infrastructure projects (NIS 1.2 billion, or $336 million). Those measures are meant to slash a burgeoning national deficit that in 2012 reached NIS 39 billion ($11 billion) — 4.2 percent of the gross domestic product.

The planned austerity measures have been highly unpopular, and last month demonstrators gathered outside Lapid’s home to express their outrage.

The Finance Committee is likely to now give its nod to the budget, after which it will return to Knesset for approval.