Income tax will not be raised in 2014, Lapid says

Income taxes in Israel will not go up in January, as was originally planned, Finance Minister Yair Lapid announced Monday.

Speaking at a press conference, Lapid said income taxes would not be raised at all next year.

“This is a decision that was taken with caution, after in-depth discussions,” he said, “and this is a decision that will help us deal with the fact that we still have great challenges in raising growth rates.”

In May, the Treasury released its 2013-2014 budget proposal, which included raising the income tax by 1.5%.

The cancellation of tax hikes was possible in the wake of government spending that was less than originally projected. The government also enjoyed a surplus after collecting NIS 5.8 billion ($1.6 billion) in taxes, higher than expected.

“We can now start, with great caution, making a calculated use of the fruits of this change in order to ease the burden on the middle class,” Lapid said, “because it is they who drive the Israeli economy, and it they who cause domestic growth, but they don’t receive enough in return.”

Lapid said there were intense discussions in the government about the plan in recent weeks.

Lapid added the he was looking to lower expected government expenditures by NIS 3 billion ($845 million) in 2014 in order to prevent a tax hike in 2015. “The government can become more effective and give the same services at a lower cost,” he argued.

“The government needs to work harder for the middle class,” he said.

Lapid also indicated he had met with Karnit Flug, Bank of Israel governor, and Eugene Kandel, head of the National Economic Council, on ways to lower government spending.

A number of MKs said criticize Lapid’s timing of the announcement had harmed the public. “It’s too bad it took a long time to internalize this and that the public had to walk around with a sense of frustration,” said Likud-Beytenu’s Gila Gamliel, who sits on the Knesset’s finance committee, according to Ynet.

During Monday’s press conference, Lapid denied he was canceling the tax hikes to improve his public standing. “If I was worried about popularity,” he told a reporter, “I wouldn’t have lowered it in the first place…I did things that would cost me politically because this is what would be good for the country.”

The finance minister often speaks about improving the status of the middle class, a topic that he placed at the forefront of his party’s election campaign and that brought strong support among voters.

Lapid’s Yesh Atid party won 19 seats in the January 2013 election on a popular platform of economic reform aimed at improving the lot Israel’s middle class. Over a half a million Israelis cast their vote for the new party, 14% of the overall vote.

But he has seen his popularity nose-dive during his term as finance minister, as he has been forced to find ways to reduce Israel’s deficit.

In September, little more than six months after taking, a poll found Finance Minister Lapid to be the most disappointing politician of the year.