Israel's Finance Minister Pushing for Tax Cuts in 2017

Kahlon wants to reduce personal tax rates by 1%, but runs into opposition from budget division.

Moshe Kahlon and Benjamin Netanyahu during a weekly cabinet meeting, June 13, 2016.
Israel Mark Salem

Finance Minister Moshe Kahlon wants to cut personal and corporate income tax rates in the next budget, but is encountering opposition from his own budget officials, Channel 2 television news said in a report Sunday.

Kahlon wants to reduce personal tax rates across all thresholds by one percentage point starting from next year, and is even considering a two-point cut with the aim of easing the tax burden on middle-class and poor families and increase their purchasing power.

Kahlon also wants to cut the corporate rate to 23% or 23.5% from 25% to help exporters keep the costs down at a time when they are struggling with an overvalued shekel, and help lure foreign companies to Israel.

Kahlon is arguing that the government can afford to lower taxes because it has been collecting far more tax revenue this year than it targeted. In the first half of the year, tax revenues rose 6.4% in real time to 142.3 billion shekels ($36.7 billion), 4 billion more than the treasury itself had forecast.

Treasury officials estimate that by the end of 2016, tax collections will have reached as much as 288 billion shekels, as much as 8 billion shekels more than budget officials had expected.

While some Finance Ministry officials are backing Kahlon, the treasury budget division opposes the plan, pointing out that the budget faces a gap of as much as 15 billion shekels in 2017 between committed spending the ceilings on the deficit and spending growth it is required by law to meet and 8 billion in 2018.

Kahlon has presented his tax-cut proposal to Prime Minister Benjamin Netanyahu. A treasury spokesman said no discussions were underway about tax cuts and that it was premature to address the issue of the 2017-18 budget hole.

Channel 2 television reported that Kahlon told officials he is confident the budget division can close the 2017-18 budget deficit as it has in recent years and that, in any case, its projections for tax revenues of 290.2 billion shekels next year and 305.2 billion in 2018 are very low.