ISRAEL AT WAR - DAY 148

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Lapid: Use NIS 13.7b in discretionary budget funds to lower VAT, offer job training

Opposition leader slams upcoming state budget as not doing enough to promote growth, attacks controversial municipal tax spread plan; budget expected to pass by end of May

Carrie Keller-Lynn is a former political and legal correspondent for The Times of Israel

Opposition leader Yair Lapid holds a press conference on the upcoming state budget, in Tel Aviv, May 16, 2023. (Tomer Neuberg/Flash90)
Opposition leader Yair Lapid holds a press conference on the upcoming state budget, in Tel Aviv, May 16, 2023. (Tomer Neuberg/Flash90)

Reiterating his disapproval of the government’s proposed two-year, trillion-shekel state budget, Opposition Leader Yair Lapid on Tuesday presented an alternative financial plan, saying that if political promises were trimmed out of the package, Israel’s high value-added tax rate could be cut by two percentage points.

Pointing to the NIS 13.7 billion ($3.7 billion) in discretionary funds the cabinet approved alongside the budget, Lapid said that cutting NIS 8 billion from the proposal would enable dropping VAT from 17% to 15%. He proposed applying the remainder of the discretionary funding to investing in human capital development for the tech sector, which makes an outsize tax base contribution.

While Lapid’s “alternative budget” principles are not likely to influence the hard-right coalition led by Prime Minister Benjamin Netanyahu, which is set to approve the budget by the end of the month, his Tuesday morning Tel Aviv press conference highlighted broader criticism against the budget’s greatly boosted funds for coalition party interests.

“What we are presenting here this morning is what the government did not present: a budget that is good for the economy, good for the middle class, those who are productive and work, and strengthen the economy,” said Lapid. “It is a budget that kickstarts the two most important things that should be in the budget: economic growth engines and a war against the cost of living.”

Finance Minister Bezalel Smotrich has acknowledged that catering to the demands of coalition partners swelled the budget, but has brushed off criticism that his plan does not address the roots of Israel’s ballooning cost of living. On Monday, Smotrich again said that he is committed to fighting market concentration and monopolies — two structural price drivers — but the budget does not contain provisions to do so.

In addition to lacking cost of living protections, Lapid said, the budget has “zero vision” because it funds extremist politicians and sectoral interests even when they controvert the broader economic interests of the country.

Opposition Leader Yair Lapid holds a press conference on the upcoming state budget, Tel Aviv, May 16, 2023. (Tomer Neuberg/Flash90)

Among the NIS 13.7 billion in discretionary funds, hundreds of millions of shekels will go toward “the messianic ventures of Avi Maoz and Orit Strock,” two far-right politicians who want to influence Israel’s Jewish national character, Lapid said.

In addition, “NIS 3.7 billion is intended to encourage yeshiva students not to go to work and learn a profession,” he added, in reference to additional funding to support full-time religious scholars. The state stipends are a subject of bitter debate between ultra-Orthodox communities, many of whose families live close to the poverty line and rely on state study stipends to make ends meet, and the rest of the country.

“We are the only country in the world that spends billions to convince people not to work and not to support their children,” Lapid, a long-time critic of the arrangement, said.

“What the government brought forward is a budget that has no good news for citizens, only good news for the politicians who pamper each other with the Israeli middle class’s money,” he added.

Finance Minister Bezalel Smotrich attends a press conference at the Ministry of Finance in Jerusalem on May 14, 2023. (Noam Revkin Fenton/Flash90)

Instead, Lapid said, “a state budget whose goal is to grow the economy should include training for high-tech, encouragement for the periphery” — areas far from Israel’s economic center — “core curricular studies in ultra-Orthodox education so that they have a toolbox for the labor market, and international trade agreements that open up export markets.

“All this is not in the budget. There are no core studies and employment incentives in ultra-Orthodox education, nor in Arab society, no incentives for the periphery of course,” he said.

Lapid also hit out against the coalition’s plan to include in the budget the so-called Arnona Fund, which on Monday night a Knesset committee approved to append to an accompanying bill, despite widespread protest and municipal strikes against the move. The fund would pool portions of commercial municipal taxes — known as arnona in Israel — and redistribute incomes from centrally-located cities with higher commercial activity to more economically modest or further-flung locales.

Several large municipalities, including Tel Aviv and Haifa, are on their second day of strike against the plan.

“When we return to the government, we will cancel the Arnona Fund,” Lapid promised, calling the plan “theft.”

The Arnona Fund is meant to provide building incentives to municipalities receiving a disbursement, including payments for building approvals. However, it has been criticized for unduly favoring cities tied to the coalition’s hard-right and ultra-Orthodox parties, including settlements — which international law blocks from paying into the fund, though they may receive disbursements — and ultra-Orthodox towns, which generally build many housing units but under-invest in commercial centers.

The brainchild of the Finance Ministry, the Arnona Fund has been raised in previous governments, including the past one, in which Lapid served as both alternative prime minister and eventually premier, and in 2014 when Lapid was finance minister.

The proposal has been swatted down until now.

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