A week after Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon announced the reduction of the value added tax from 18% to 17%, effective October 1, and the corporate tax from 26.5% to 25% on January 1, opposition Zionist Union MK Manuel Trajtenberg called the move populist, adding that this week brought a similar move in the the government’s tax-rate cut on alcoholic beverages.
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Trajtenberg was his party’s candidate for finance minister, had Zionist Union formed the government. An economist by profession, before entering politics he chaired the planning and budgeting committee of the Council for Higher Education. In the wake of the social justice and cost-of-living protests of 2011, Netanyahu appointed him to head a public panel to develop recommendations on the matter.
“It’s the direct continuation of the presentation of a budget without vision,” Trajtenberg told TheMarker, referring to the government’s proposed 2015-2016 budget, which is pending before the Knesset, “without addressing the main challenges that are mortgaging the future of the citizens of Israel.”
He took Kahlon to task for adopting what he claimed is Netanyahu’s system of cutting taxes, which in turn requires a cut in government funding, including social welfare spending. In reference to the preliminary Knesset vote last week on the budget, the first of three votes the budget must pass to become law, Trajtenberg said: “What did the Knesset members vote on last week in the budget bill when these tax cuts were not included in the budget bill? That’s not how you manage economic policy.
“The tax reduction is based on surplus tax receipts [over projections], but actually the surplus is since the beginning of 2015, and it’s not clear what will happen in the future,” he continued.
“When you reduce tax rates, you have to look ahead, for example, at the expected pace of [economic] growth and not backwards at what has been collected, which may have been the result of one-time factors. You cannot spread around money that you don’t have. I’m very fond of Kahlon, but I have been very disappointed by the budget.”
Instead of cutting the VAT rate, Trajtenberg suggests that an overall plan be put in place that spurs growth in industry, particularly in the production of products for local consumption rather than exports, in light of the sputtering global economy.
Kulanu MK Eli Cohen, an accountant who chairs a Knesset committee on reform, said the proposed budget is a responsible one that supports social needs and maintains the deficit at a level that will protect the country’s credit rating.
“It’s the most socially supportive budget in the past decade, and it includes additional allocations to the elderly, savings plans for children, investment in public housing and salary increases for soldiers,” Cohen said.