Prime Minister Benjamin Netanyahu is reportedly reconsidering his campaign promise to cancel the 18 percent value-added tax (VAT) on many grocery items.
According to Channel 10, opposition to the measure has grown since the end of the election campaign on March 17, including among Israel’s most important economic institutions. The Bank of Israel, the Finance Ministry, the Tax Authority and international financial agencies have expressed concern that the measure would not help Israel’s poor afford groceries and recommended a negative income tax instead.
In the wake of this opposition, some of which has been expressed publicly and vociferously, Netanyahu is reportedly considering going back on his campaign pledge.
The idea for a 0% VAT on grocery goods – Netanyahu’s proposal suggested it would be for basic staples, such as eggs, milk and bread – was first raised in the election campaign by Shas leader Aryeh Deri. Netanyahu’s adoption of the idea in a speech in December was seen as a signal to the ultra-Orthodox parties excluded in his last government that he saw them as desirable partners in the next one.
According to critics, the 0% VAT will save consumers only a few dozen shekels per month. The savings would apply without income distinction, leading to hundreds of millions of shekels lost to the public purse as wealthy and middle class consumers benefit from the measure.
Finance Ministry officials are reportedly quietly urging the prime minister to replace the 0% VAT with a negative income tax that will distribute the estimated 1 billion shekels that would be lost annually to the public treasury by the VAT cut directly to the working poor.
It’s not clear if dropping the idea would be palatable to Shas, especially in the next two weeks of sensitive coalition talks in which the next government’s legislative agenda will be negotiated.