Sheshinski's Natural Resources Tax Reform Stays Part of State Budget Deal

Compromise hammered out among ministers amid concern that Israel Chemicals, Netanyahu may try to weaken terms.

Ofer Vaknin

The Sheshinski II committee recommendations for revising taxes on natural resources — mainly the minerals that Israel Chemicals extracts from the Dead Sea — will remain in the Economic Arrangements Bill but be subject to further deliberations by an interministerial committee.

That was the compromise hammered out by ministers at a stormy meeting on Wednesday as Prime Minister Benjamin Netanyahu sought to have the Sheshinski proposals removed from the Arrangements Bill altogether.

Finance Minister Moshe Kahlon and Economy Minister Arye Dery opposed the idea, with Kahlon’s director general, Shai Babad, warning that to pull Sheshinski out of the bill would be tantamount to killing it.

In the end, under a compromise devised by Justice Minister Ayelet Shaked, Sheshinski will remain in the Arrangements Law while an interministerial team weighs changes in time for it to be amended when the Knesset votes the second and third readings of the law in November.

The Sheshinski reforms have been a battleground between Israel Chemicals allied with labor unions against critics who say it pays the state too little for exclusive rights to Dead Sea minerals. The committee would replace a host of variable tax rates on natural resources, except oil and gas, with a single rate that would increase ICL’s tax bill by an estimated 500 million shekels ($129 million) annually.

Shares of ICL, which has warned that the Sheshinski proposals might cause it to move more operations overseas and cost Israel jobs, ended down 1% Wednesday in Tel Aviv Stock Exchange trading, at 24.49 shekels.

“The bill presented today would not enable the company to go ahead with an investment plan of over 5 billion shekels, and even puts at risk the future of existing production operations,” the company said. “ICL calls for a business environment that will enable its Israeli operations to be competitive with those in other countries.”

Wednesday’s meeting quickly fell into a dispute after the finance and economy ministries proposed a change in the law before it would be inserted into the Arrangements Bill. Eli Groner, Director General of the Prime Minister’s Office, said that if there were going to be changes to Sheshinski, it would be better to remove it from the Arrangements Law altogether.

Kahlon responded that there was no reason why the law couldn’t and shouldn’t be amended in the two months before the second and third readings. Babad added that pulling Sheshinski from the Arrangements Bill would make it impossible to win Knesset approval. Dery agreed.

In fact, the compromise formula may end up with Sheshinski pulled from the Arrangements Bill, supplementary legislation to the annual budget that covers a host of reforms.

The compromise creates a committee that includes officials from the PMO and the finance, economy and justice ministries — an unwieldy number that might not be able to reach agreements on amending Sheshinski. The cabinet would have the right to settle committee disputes, but it also may not be able to come to an agreement.