Who Favors Raising Taxes Next Year?

Most of the political parties say they favor hikes, but Likud-Yisrael Beiteinu says it's not sure any increases are needed to close the budget gap.

The first task facing the government that will be formed following the January 22 election is getting cabinet and Knesset approval of the state budget for this year and next. The prime minister is expected to demand that all of the parties in the next governing coalition commit up-front to support the new budget and a new economic program.

That plan is expected to include tough economic measures in light of the need to cut NIS 15 billion to NIS 20 billion from the 2013 budget, which in all probability will include tax increases of NIS 3 billion to NIS 5 billion. Under such circumstances, it's not surprising that some of the parties are attempting to obscure their positions on major economic and social policy issues, including the make-up of the cuts, their positions on raising taxes, cuts to public sector wages, proposed solutions to the high cost of housing and support for the public health system.

A little less than three weeks before Israelis go to the polls, most of the parties have not presented their platforms on economic and social policy. The joint ticket formed by Prime Minister Benjamin Netanyahu's Likud and former Foreign Minister Avigdor Lieberman's Yisrael Beiteinu has not presented its platform, apparently out of concern that it will lose electoral support if it discloses the tough measures it would impose on the public after the election.

And the two major ultra-Orthodox slates, Shas and United Torah Judaism, which are thought likely to join a Netanyahu-led government, have also not made their platforms clear, other than their opposition to cuts to government child allowances.

On the other hand, the chairwoman of the Labor Party, Shelly Yacimovich, has presented a detailed socioeconomic platform on her party's behalf, while Meretz, Habayit Hayedudi, Hatnuah and Yesh Atid have disclosed the outlines of their positions on a number of economic questions.

Choose your cuts

TheMarker sought to have the parties go on the record, posing a number of policy questions on socioeconomic issues to the eight parties with the largest current support in the opinion polls. Here is what they had to say:

1. The Finance Ministry is preparing a proposal for NIS 15 billion to NIS 20 billion in budget cuts. What should be cut?

Likud-Yisrael Beiteinu: The expected cut is a reduction of about NIS 14 billion, which is necessary to meet the maximum permitted spending ceiling set by a fiscal rule passed by the Knesset, allowing the budget to increase by NIS 15 billion.

Labor: The budgetary sources for our plan for a fair economy and to cover the budget hole that Netanyahu is leaving behind involves reasonable government royalty fees on natural resources; income tax increases, to 55%, on those earning more than NIS 50,000 per month; a gradual increase in corporate taxes on those companies in the top 10%, to a rate of 30%; putting a stop to aggressive tax planning; collection of trapped profits taxes [from multinationals that have been given tax concessions and have refrained from repatriating their profits]; probate taxes on estates of NIS 15 million and over.

Habayit Hayehudi: As part of a program of cuts and efficiency measures, the defense budget should be cut and oversight [of defense spending] should be increased. Reforms should be instituted in the public sector and at government corporations that should include performance measurement and differential compensation, giving managers the authority to dismiss and transfer employees, and a reduction of billions in wage expenditures. Welfare-to-work programs that reduce the number of those receiving government allowances by tens of percent should also be implemented, thereby reducing the cycle of poverty and government expenditures on government allowances.

Shas: The scope of the cuts can be reduced by increasing the sources of revenue, which should include redirecting expected revenue from natural gas production. We will fight against cuts in allocations to the disabled, the elderly, single-parent families and children. The defense budget should be cut instead.

Yesh Atid: We won't lend our support to raising the budget deficit target. We will cut transfer payments to yeshiva students who don't serve [in the army], child allowances, and budget [allocations] to [West Bank] settlements outside of the major settlement blocs. The number of government ministries should be reduced to 18 and the institution of the minister without portfolio and deputy ministers who get the status of minister should both be eliminated. Reforms should be carried out in government ministries to streamline systems and bureaucracy and bring about substantial savings in government expenditures.

Hatnuah: Across-the-board cuts should be avoided and priorities should be changed. The flow of funds to and investment in isolated political [West Bank] settlements should be halted. There is a direct connection between the diplomatic process and the socioeconomic situation in Israel. The diplomatic process will improve the economic situation, increase state revenues and halt paying off coalition debts to [coalition] partners.

United Torah Judaism: Cuts should not be carried out [affecting] the middle class and the weak segments [of the population], which have sustained a lot in recent years. The economic enterprises and those sometimes earning huge and disproportionate salaries are the ones who should give more under such circumstances.

Meretz: We should not be talking about cuts but rather just about increases. We will work to halt the overspending in defense budget and to stop construction in [settlements] in the territories, and we will condition a budget allocation to ultra-Orthodox education on teaching core curriculum subjects.

VAT about a tax hike?

2.There appears to be a NIS 3 billion to NIS 5 billion shortfall in state tax revenues. Do you believe it is necessary to raise taxes and if so, which taxes?

Likud-Yisrael Beiteinu: At this stage, it's too early to assess the need to raise taxes in 2013 when it's still not clear if such an increase will be necessary.

Labor: We suggest only raising income taxes on those earning more than NIS 50,000 per month, by 5%. We are staunchly opposed to increasing the value-added tax rate.

Habayit Hayehudi: There apparently will be no alternative to raising the VAT rate. An increase of 1% in the VAT is expected to generate about NIS 4 to 4.5 billion for the state coffers. The income tax and the corporate tax should not be increased since increasing them would lead to tax planning and hurt state revenues.

Shas: We oppose increasing the VAT, which would mainly hurt the poor. In general, raising taxes is not a foregone conclusion, and it could actually hurt growth. We will support an increase in income taxes for those earning NIS 40,000 or more [per month].

Yesh Atid: We will not lend support to additional tax increases on the middle class.

Alon Ron
Haim Taragan
Olivier Fitoussi
Emil Salman