Inter-ministerial team opposes tax cuts for poor
The inter-ministerial team to fight poverty, headed by Finance Ministry Director General Joseph Bachar, will be submitting its recommendations later this week. Finance Minister Ehud Olmert and Prime Minister Ariel Sharon will review the program before it is reworked into the basis for the government's anti-poverty plan.
Contrary to expectations, the team did not recommend tax cuts for the poor, whether for income tax, health care or the abolition of VAT on basic food items, both because of their high cost and because they will also benefit people who are not needy.
Sharon, however, said Monday at the annual Israel Business Conference in Tel Aviv that he had instructed the treasury to consider the proposal to abolish VAT on meat, sugar, cooking oil, milk, cheeses, yogurt, bread, pasta, rice and cold breakfast cereals as part of the team's recommendations. Presently, VAT is charged on all goods with the exception of fruits and vegetables.
The interministerial team says their recommendations will provide direct assistance to the poor. The recommendations include the following:
l subsidies for child day-care facilities in disadvantaged communities as an incentive to bringing mothers into the workforce,
l discounts on public transportation for people who live at a distance from centers of employment,
l subsidies for vocational training, including the cooperation of employers during and after the initial training period and the continuation of welfare payments during the training period,
l subsidies for employers who establish enterprises within Arab and ultra-Orthodox communities, with particular emphasis on creating jobs for women in these groups as they are the least likely to enter the workforce,
l increased stipends for the elderly, which together with the Arabs and the ultra-Orthodox are the poorest sectors in the country,
l heightened enforcement of minimum-wage laws, including increased budgets to prosecute offenders and greater penalties for violators,
l higher fees for employers who hire foreign workers, as part of an effort to increase the hiring of Israelis,
l spot measures to ameliorate poverty in various locations around the country.
These programs are relatively inexpensive and are to be implemented as part of a multi-year plan. The total budget for the program has not been determined, but it has been estimated at NIS 1 billion initially and NIS 1.5 billion annually.
It is unlikely that any of the points will be implemented before the elections in March, and even a partial introduction of the measures will probably have to wait until the second half of 2006.
Opposition to Sharon's plan
"It would have been better to have a transparent economic policy separate from the preelection period," said MK Yuli Tamir (Labor). "They had the whole term to make the move. The fact that it's being taken now leaves a bad taste in one's mouth."
The Bank of Israel and the treasury were in sync, for a change, in their rejection of the proposal to repeal VAT on a range of food items, claiming that this would cost the public purse as much as NIS 5 billion annually, while benefiting the poor only minimally.
Senior treasury officials pointed to another problem with focusing on the taxes on groceries: "How can you explain abolishing VAT on food while continuing to charge VAT on lifesaving drugs?"
In the Knesset, meanwhile, it was pointed out yesterday that any change to the VAT would require three readings in the plenum, while the legislative body will be going into recess in two weeks.