Israeli Ministers See Draft of Austerity Budget Ahead of Vote

Austerity budget includes a 1.5% income tax hike, health tax on housewives, cuts in child allowances, VAT at 18%.

May 7, 2013

The Finance Ministry sent the new drafts of the government budget for 2013-2014, along with the Economic Arrangements Bill, to all government ministers Monday evening. The ministers will now have until a special cabinet meeting next Monday to study the proposed measures before voting on the new budget and bill.

One issue still not resolved in the latest budget proposal is the expected size of defense budget cuts, despite it being a key issue. Nevertheless, the treasury made clear that it will aim to cut NIS 4.5 billion from defense expenditure in 2013 and 2014. The defense establishment is opposed to any cuts in defense spending.

According to the new budget, the government will implement NIS 7 billion in budget cuts between August and December 2013. The government will also reduce expenditure by NIS 18 billion and raise tax revenue by NIS 14 billion in 2014.

The treasury’s budget submitted Monday included a measure to raise the income tax on all income brackets by 1.5 percent, starting January 1, 2014. Before the latest budget proposal, income tax was expected to be hiked 1 percent. The difference will bring in another NIS 1 billion in tax revenue for the government, or NIS 3 billion in added tax revenue instead of the originally planned increase of NIS 2 billion.

In addition, the corporate tax rate will also jump from 25 percent to 26 percent beginning in 2014, bringing in another NIS 700 million per month to the government’s coffers.

More immediately, Israel’s value-added tax will increase from 17 percent to 18 percent beginning June 1, 2013. At the same time, tourists’ VAT exemption will be revoked.

The treasury is also planning to start levying the national health tax on women who don’t work.

The new budget outline included a number of significant spending cuts. Among the programs expected to be hit with serious funding cuts are former deputy health minister Yaakov Litzman’s plan for free dental care for children up to age 12, as well as a hefty reduction in child allowances to NIS 140 per child per month.

In addition, the plan for after-school programs for all Israeli children between the ages of 3 and 9 will be canceled in a move that will save state NIS 800 million annually.

Yair Lapid in a meeting MondayCredit: Emil Salman