Finance Minister Roni Bar-On told Treasury officials on Wednesday that he decided to freeze the plan to cut income tax and company taxes that he had launched two weeks ago.
"Motivated by a deep concern for the stability of the economy, I've come to the conclusion that it would be wise, in light of the current political instability, to avoid rocking the boat and to sustain good industrial relations in the public sector," Bar-On said.
Shortly after Bar-On unveiled his plan, Histadrut labor federation chairman Ofer Eini warned that the union would declare a strike unless the Treasury backtracks within two weeks' time.
"I was wrong to believe that the plan could be carried out in full, despite its controversial components, in today's political climate," Bar-On said.
"We are facing complex challenges, and the economy should be managed responsibly, while taking into account the current political instability," Bar-On added.
The most contentious part of the tax reform was Bar-On's intention to annul the tax exemption currently applied to employees' saving funds, meaning allocations to such a savings fund, which matures after six years, will be taxed.
Earlier Wednesday, Bar-On had told Treasury officials that the sweeping opposition to the saving funds reform was a major consideration in his decision.
A Treasury official said after the meeting that "one should note that the minister said it was just the timing that was wrong, but it was still the right thing to do. The ministry officials think so too."
Histadrut labor federation leader Eini welcomed Bar-On's announcement.
In an interview with Army Radio, he said that he hails the Finance Minister "for his commendable decision to avert a general strike and the further deterioration of industrial relations in the public sector. I praise him for his proactive stance."
Eini said the cuts should not be associated with the tax exemption on saving funds.
"The total cost of the scheme adds up to NIS 8 billion, out of which a mere 2 billion would emanate from annulling the exemption," he told Army Radio. "I'm sure the funding could be found elsewhere."
Labor MK Shelly Yachimovich said that Bar-On should realize that Histadrut under Ofer Eini is a key player, and that every new plan should be coordinated in advance with it.
Manufacturers Association chairman, prominent industrialist Shraga Brosh also welcomed Bar-On's announcement, and said that "taxes should not be imposed unilaterally, and in the future we should attack the oncoming economic challenges after holding trilateral negotiations with the workers and the employers."
