Finance minister unveils new tax breaks, benefits for working families
But Kahlon sparks controversy by announcing move without informing PM; coalition head hits back by slamming new plan as ‘without meaning‘
Sue Surkes is The Times of Israel's environment reporter.
Finance Minister Moshe Kahlon on Tuesday presented a series of tax breaks and benefits he said would increase the net income of poor and middle-class working families by thousands of shekels a year.
Key among them is a plan called “Net for the Family,” a NIS 4 billion a year ($1.1 billion) package that includes subsidies for after-school education frameworks, additional tax credits for working parents of children up to age 6, higher income supplements for low-income earners, equalization of tax credits for working fathers and mothers, and tax cuts on children’s clothes, shoes and cellular phones.
The plan won widespread praise, but for many the focus was on what, or rather who, was left out — Prime Minister Benjamin Netanayhu, who was surprisingly not briefed ahead of time or invited to the press conference where Kahlon presented the plan.
Kahlon denied it was a snub, saying that the initiative was “a continuation of government policy,” so that he didn’t see “anything to update anyone about. Nothing special happened here. We’re implementing government policy.”
He nevertheless took a swipes at both Netanyahu and political rival Yair Lapid, head of the opposition Yesh Atid party, when he referred — without naming names — to their former roles as finance ministers, saying it was possible to talk about “the fat and the thin,” or to ask “Where’s the money?” but that until today, nothing had been done for the middle class.
Netanyahu has been known to employ the parable of the thin man — the private sector — carrying the fat man, the public sector, while Lapid used “Where’s the money?” as a campaign slogan during his first bid for political office in 2012.
Referring to Kahlon’s announcement last week of a 50% increase in monthly disability benefits for the more than 200,000 Israelis who receive the financial assistance, coalition chairman and Netanyahu loyalist David Bitan (Likud) asserted, “We won’t allow any transfer of funds until the problem of the disabled is solved.
“The significant increase in benefits for the disabled is the most important thing at the moment, and until that’s implemented, there’s no meaning [to be attached] to new programs that are presented,” he said in a statement.
Another Netanyahu loyalist, the recently appointed Communications Minister Tzachi Hanegbi, told Army Radio that, so far, it has not been the norm for the prime minister to get wind of such dramatic policy initiatives from the media.
Kahlon has positioned himself as the champion of the middle class, which took to the streets in 2011 in countrywide social-justice protests demanding affordable housing and a lower cost of living.
Kahlon’s program is aimed at two principal working populations: families whose income is below the minimum for taxation, which means they do not qualify for certain income supplements; and middle-class families that are just over the threshold above which citizens must pay tax.
According to figures issued by the Finance Ministry, the changes will add hundreds of shekels to a working family’s monthly budget.
“Today, the State of Israel says clearly to working Israelis that it knows how to give as well as just to take,” Kahlon said. He added that his program was aimed at encouraging people to work and that it would help to level the playing field while maintaining fiscal responsibility.
“By reducing customs duties on clothing, shoes and cellphones at a cost of hundreds of millions of shekels, and by adding [tax] credits for parents, we will increase the available income of working families by thousands of shekels each year and we’ll strengthen the middle class — the backbone of Israeli society,” he said.
The program of subsidies for after-school facilities would allow working women to remain in the workforce, he said. An increase in benefits for work would bring new opportunities for social mobility to working class families, he added.
Kahlon said the treasury had amassed a surplus of NIS 1.6 billion ($436 million) during the first quarter of 2017 alone and that forecasts were for an extra NIS 3 billion ($817 million) in government income for 2017 and an additional NIS 3.5 billion ($953 million) in 2018. The figures did not include the expected windfall in taxes following Intel’s decision in March to buy the Israeli car technology company Mobileye for an unprecedented $15.3 billion.
According to Finance Ministry calculations, a couple with two children aged 4 to 6, where the man earns a gross monthly salary of NIS 12,000 ($3,270) and the woman earns NIS 8,000 ($2,180) before tax, the changes would amount to an extra NIS 12,900 net ($3,500) to their yearly income.
Where both the man and the woman in a partnership earn NIS 15,000 ($4,000) each every month and have three children under the age of 6, the sum of NIS 16,770 ($4,570) will be added to their annual available income.
Subsidies for after-school frameworks — which cost the treasury NIS 900 million ($245 million) a year — will be weighted in favor of families living in socioeconomically weaker locations.
At present, those frameworks cost NIS 900 to NIS 1,300 per month ($245 to $354), according to the ministry’s figures. From September, families will receive subsidies ranging from NIS 150 to NIS 350 ($40 to $95) for each child up to second grade.
To further encourage working people, a low-income earner of up to NIS 5,000 per month ($1,360) will get an additional grant of NIS 495 ($135) per month if he or she has one or two children, and around NIS 720 ($196) for three children or more. Where both parents work, the benefit will rise by 30%, equaling a total monthly grant of NIS 1,288 ($350).
Currently, low-income women receive larger benefits than men — NIS 495 ($135) and NIS 330 ($90) respectively on salaries up to NIS 4,800 ($1,307). Equalization of the benefits is intended to encourage more men to work. This is presumably aimed at the ultra-Orthodox sector, where men tend to study, while their wives are the breadwinners.
Regarding reductions in customs duties, the current 15% duty on phones and the 12% tax on footwear will be scrapped altogether, while taxes on baby clothes — currently 6% — will be cut by half.
It was Kahlon who in 2012 broke the former three-way cellphone cartel, opening the market to new players and bringing the prices of call packages crashing down.
Raoul Wootliff contributed to this report.