Israel's Finance Minister: Poor, Middle Class to Enjoy Windfall

Moshe Kahlon also vows to add 4 billion shekels a year for disabled, upstaging Netanyahu on issue

Finance Minister Moshe Kahlon.
Ofer Vaknin

Finance Minister Moshe Kahlon on Tuesday unveiled an ambitious but expensive program aimed at lowering the cost of living for middle class and lower-income Israelis – and at raising his political profile.

At a snap news conference on Tuesday, Kahlon said his “Family Net” (as in net income) program would award more tax points for working parents, subsidize after-school programs for young children, expand the existing negative income tax program and lower customs and purchases tax on a range of consumer goods.

“Today, we’re saying clearly to Israelis who work that the government needs to know how to give, not just take. Today we are strengthening the middle class with deeds and not just words,” Kahlon told the news conference. “Everyone talks about the middle class, but nothing has been done until now.”

In addition, Kahlon formally declared that a proposal by the government’s Zelekha committee to increase disability allowances would be budgeted at 4 billion shekels ($1.1 billion), although the increase would occur gradually over several years.

While that was the biggest single spending item on his agenda Tuesday, it was middle class and lower-income voters who were the focus of the news conference – as was by implication the contest for votes with Prime Minister Benjamin Netanyahu.

Sources said Kahlon learned that Netanyahu had intended to announce an increase in stipends for the disabled, and beat him to the punch with his own press conference. As a result, the Prime Minister’s Office canceled the event it had planned, to which a group of disabled people had been invited.

Senior Likud officials said they were angry at Kahlon – who heads the Kulanu Party, the biggest junior coalition party in the cabinet – over the maneuver. Cabinet ministers also expressed anger, claiming he was presenting the government with a fait accompli. Still, none of the ministers intended to publicly oppose the treasury chief because the move is so popular.

The monthly payment for disabled individuals currently stands at 2,342 shekels – half of the minimum wage.

The tax and other measures for working Israelis is quite generous and immediately raised questions about how the treasury would pay for it, as well as the enlarged disability payments.

According to Finance Ministry figures, for instance, a family with two children ages four and six with a father earning 12,000 shekels a month and a mother earning 8,000 before taxes would enjoy an annual savings of 13,000 shekels after taxes.

A family with three children under age five with two working parents, each earning 15,000 shekels before taxes, would enjoy benefits of nearly 17,000 a year.

For families in a community designated as being socioeconomically disadvantaged, the program would grant them another 350 shekels a month for children ages 3 to 8 who attend an afternoon program after school. Others will get aid of 150 shekels a month and only for children in the first and second grades, Kahlon said.

Meanwhile the maximum income entitling families to negative income tax payments from the government, otherwise known as a work grant, would be raised to 5,600 shekels a month from 4,900. The purchase tax on imported cellphones, footwear and baby clothes will go down from rates of 12-15% to nil in the next several weeks from now, Kahlon said.

Amir Levi, head of the treasury budget division, estimated the cost of subsidizing afternoon programs would reach 900 million shekels annually and the expanded negative income tax another 750 million, while the first year of the expanded disability payments would cost a further 800 million.

Moshe Asher, head of the Israel Tax Authority, said he was confident that surplus tax revenues would be able to cover the costs for now. That doesn’t include the windfall the treasury expects from the $15.3 billion sale of the Israel self-driving technology company Mobileye to Intel, announced last month.

Treasury chief economist Yoel Naveh told the press conference that the government collected 1.6 billion more in taxes than forecast in the budget in the first quarter, and said he expected the excess for all of 2017 to reach 3 billion. In 2018, the surplus would reach 2.3 billion, he estimated.

Still, observers noted that 1.2 billion of the first-quarter surplus was from one-time factors and that the treasury didn’t have any plans for how to cover the costs of the program after 2018, even though the cost of the expanded disability allowances will continue to grow until they reach 4 billion annually.