Opposition head Shelly Yachimovich skewered a government plan to raise taxes and cut ministry budgets, calling the design “sheer cruelty” and accusing Finance Minister Yair Lapid of abandoning the public.
“This is not a growth plan, this is not hope, it is depression and blows,” Labor party leader Yachimovich said at a press conference Tuesday. “It is sheer cruelty and traitorous to the public and a severe economic mistake that will bring the economy to a standstill.”
The Finance Ministry proposal, finalized Tuesday, aims to increase government revenue by raising value-added tax by 1 percent (to 18%), increasing income tax by 1.5%, boosting corporate tax to 26% and imposing a further “sin tax” on alcohol and cigarettes.
The ministry aims to cut 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 (NIS 4 billion or $1.12 billion), education (NIS 1.5 billion or $420 million), child benefits (NIS 2 billion or $560 million) and transportation infrastructure projects (NIS 1.2 billion or $336 million).
“The deficit is caused by a reduction in income taxes, but no one dares to touch the major capital reservoirs. The cost of living and the erosion of wages hit the middle class and the poor so hard that they stopped paying taxes and stopped buying,” continued Yachimovich.
On Friday, Lapid said he would raise the deficit ceiling to 4.65% instead of 4.9% — which means that imminent budget cuts of NIS 6.5 billion will take place and taxes will be raised by about NIS 5 billion.
In 2014, the budget deficit ceiling will once again be lowered to 3% of the GDP, its current rate.
The Labor Party head also mocked Lapid with a cartoonish illustration of a bomb with a red line drawn at its tip, mimicking Lapid’s use of a similar drawing to talk about not raising the cost of living for the middle class during the Knesset campaign. Lapid’s drawing was itself a copy of Prime Minister Benjamin Netanyahu’s cartoon bomb illustration, used at the UN in October 2012 to speak about “red lines” on Iran’s nuclear program.
“Mr. Finance Minister, this is the bomb, this is the fuse, that is the red line,” Yachimovich said in English while holding up the illustration, copying word for word Lapid’s speech on December 25 of last year.
“If these are your new politics, I miss the old ones,” she said, riffing off one of Lapid’s campaign slogans.
On Tuesday, Lapid discussed his economic plan at length in a Cabinet meeting. Should the finance minister’s budget-cut proposal be accepted, it would take effect almost immediately.
The new tax hike is projected to cost middle-class families thousands of shekels per year.
“Lapid is actually transferring the deficit from the government’s pocket to that of all Israelis,” Yachimovich said. “These citizens are the only growth engine for the country. With this plan, there is no chance that anything will improve.”
On Thursday, credit-rating agency Standard & Poor’s lowered Israel’s rating in local currency, citing the country’s decreased fiscal performance and monetary policy as reasons behind the move to drop Israel to A+/A-1 from AA-/A-1+.
However, it said Israel’s rating in foreign currency would stay the same at A+/A-1.
“The lowering of the local currency rating results from recent fiscal slippage, highlighting the gap between fiscal performance and other key metrics such as economic performance, external balances, and monetary policy flexibility,” the agency said in a statement.
Lapid had defended the austerity plan as a painful but necessary measure to rein in the deficit and prevent further financial troubles down the road.
Prime Minister Benjamin Netanyahu has not yet made any public reference to Lapid’s new proposal.