Treasury eases austerity measures
As part of understandings reached between finance minister and Finance Committee chairman, planned 1.5% income tax hike will be replaced with gradual increase, child benefit cuts will be reduced, decision to impose health tax and national insurance payments on housewives will be canceled
The planned 1.5% income tax hike on all income levels will be replaced with a gradual increase according to the following structure: A 1% rise on an income of up to NIS 14,000 (about $3,900), a 1.5% rise on an income of NIS 14,000 to NIS 22,000 ($3,900 to $6,000), and a 2% rise on an income of more than NIS 22,000 ($6,000).
In addition, the parties agreed to cancel the decision to impose a purchase tax on citizens moving to larger apartments. Instead, the purchase tax on expensive apartments (costing more than NIS 4.5 million instead of NIS 5 million as defined today) will go up from 5% to 6%.
Instead of cancelling students' income tax credit points, students completing their bachelor's degree studies will receive one credit point and master's degree graduates will get half a point for a year.
The decision to impose health tax and national insurance payments on housewives and reduce child benefits will be canceled. Child benefits will not change for children born before 2003. For younger children, the benefit will be reduced to NIS 140 ($39) per child a month. In order to fund these compromises the Treasury decided to increase dividend payments from governmental companies in the coming years.
All these changes will cost the State NIS 3.5 billion ($980 million) in income. The alternatives suggested by Slomiansky and accepted by the Treasury will come from a NIS 500 million ($140 million) budget cut in the Education Ministry and a NIS 500 million cut in the Transportation Ministry budget.
A further NIS 500 million will be taken from dividends of forgotten governmental companies. Changes in tax brackets and freezing tax brackets in 2014 will yield another NIS 1 billion ($280 million). The rest will come from cuts in the budgets of other ministries which have yet to be decided.
"We made an effort to find alternatives for the canceled cuts by thinking outside the box," said Slomiansky. "Along with the battle against black money in a significant part of the Arrangements Act, we improved the situation after working day and night to prevent hurting the middle class and low-income population."
Sources in the Finance Ministry said that the state budget framework for 2013-2014 would not be affected by easing the austerity measures. In other words, the government will be able to meet the target of cutting NIS 6.5 billion ($1.8 billion) in the 2013 budget and another NIS 18 billion ($5 billion) in 2014 and increase its income from taxation by NIS 14 billion ($4 billion) in 2014.
Opposition Chairwoman Shelly Yachimovich (Labor) said in response, "The opposition's adamant battle and the public's high involvement are bearing fruit right now, forcing Lapid to fold and ease his planned austerity measures. But Lapid and (Prime Minister Benjamin) Netanyahu are maintaining their principle of casting all the burden on the middle class and the poor while giant companies enjoy exemptions and gifts.
"The general harsh picture remains as it was. The middle class and the poor are subject to heavy austerity measures which will make life very difficult and negatively affect all growth generators in the economy," she added.
Budget must be approved by early August
Following the agreements between Lapid, Shelach and Slomiansky, the Finance Committee is expected to vote in favor of the state budget, paving the way to its approval in the next two weeks.
The Knesset must approve the state budget by early August, otherwise it will be forced to dissolve and hold new elections.
One issue which still stands as an obstacle ahead of approving the budget within that time period is the defense budget. As part of the effort to balance the budget, the government decided on a NIS 3 billion ($840 million) cut in the defense budget, yet its implementation depends on the approval of the IDF's new multi-year plan at the Knesset's Foreign Affairs and Defense Committee.
The Committee will hold its first meeting on the plan next Monday. Most committee members are new and are not very familiar with the defense establishment. In order to meet the budget approval deadline of late July, the committee members will have 10 days to approve the plan, which includes far-reaching changes in the army's structure, most of which stem from geopolitical changes in recent years.
Zvi Lavi contributed to this report