Blaming it on bad timing, Finance Minister Roni Bar-On has withdrawn his controversial plan for tax reform, including slapping tax on study funds (kranot hishtalmut).
"I was wrong in my timing. The economy is more important than my ego," he said yesterday, after which the Histadrut labor federation called off the general strike it had scheduled for the start of July.
Bar-On made clear to the top Finance Ministry management that he was canceling the reform because of the opposition from the Histadrut on taxing study funds. He also briefed Prime Minister Ehud Olmert and Bank of Israel governor Stanley Fischer on his decision. "In these days of political instability, it is very important to keep the economy out of the political game and continue managing it rationally," he told TheMarker.
It was unreasonable for the economy to pay the price of a general strike because of political opposition, Bar-On said. "As the person in charge of the economic system, and based on my desire to maintain economic stability, I concluded that given the political instability and the fear of an economic slowdown, it would be best to prevent a strike at this time, the jolts that a strike would cause and destabilization of the labor market."
The tax reform plan, including lower income and corporate tax but new tax on study funds, had been consolidated by treasury officials over a long period of time, Bar-On said. Various opinions had been offered and discussed.
"I believed that the plan was balanced," the minister said. "The responsibility is entirely mine. I was wrong to think that the program could be advanced now, despite its controversial elements."
Seeing that it couldn't, Bar-On said, "I decided that instead of being stubborn, hunkering down in position and risking setting off a general strike, it would be better to withdraw the plan and return in the future with a better one."
He does intend to continue promoting tax reform, and to find additional revenues for the treasury that come from somewhere other than taxing the study funds, Bar-On said.
Bar-On had meant to accelerate income tax cuts, reducing the maximal level of marginal tax from 46% in 2009 to 42% in 2015, and lowering corporate tax from 27% in 2008 to 20% in 2014. Taxing study funds would have compensated for part but not all of the lost income.
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