Israel Can't Afford Childcare Tax Deductions, Officials Say

Treasury officials, appalled by the Supreme Court's ruling that working parents will be allowed to deduct childcare costs from taxes, hope to void it through legislation.

"The state doesn't have the money to handle the ruling," explained a treasury official.

Tax officials were rather more relaxed, predicting that not much will come of the ruling at the end of the day. "The sky isn't falling down," observed tax assessor Haim Gabay of Holon at a Bar-Ilan University lecture last week. "What, are we going to turn all the grannies into businessmen? Are they going to start keeping accounts?"

The taxman's concern is that allowing childcare deductions will open the door to abuses of the system, Gabay explained to the class.

The original case was brought by Vered Pery, who argued that a working parent's outlay on childcare, including preschool, should be deductable. Judge Magen Altuvia of the Tel Aviv District Court ruled in her favor in April 2008.

The Israel Tax Authority appealed the ruling to the Supreme Court and refused to implement the lower court's decision until the higher court decided on the matter. Which it has now done, again in favor of the plaintiff, to the surprise of government officials.

Their working assumption had been that the court would reject Pery's case.

Today, or at the latest tomorrow, top treasury officials will meet to discuss their response to the ruling.

"It's too soon to discuss our next steps," a treasury official told TheMarker yesterday. The state stands to lose between NIS 2.5 billion and NIS 3 million a year in tax income, which Israel can't afford - certainly not given the macroeconomic conditions, the official stressed.

"If the court's ruling is implemented, it will benefit mainly the top earners," he said.

But in any case, it can't be done because the state can't afford it. The ruling has to be voided through legislation, possibly through the Economic Arrangements law, the treasury official said.