Cabinet Fast-tracks Trajtenberg Tax Reform; Citizens to 'Feel Change'

Concentration committee postpones hearings over tycoons' pressure.

The cabinet approved the Trajtenberg committee's recommendations for tax reform in an unexpectedly quick session last night.

Prime Minister Benjamin Netanyahu's ministers met in Safed last night in honor of the new medical school that opened there yesterday. They passed the tax reforms in only 45 minutes.

Trajtenberg and Netanyahu - Avi Ohayon / Prime Minister’s Bureau - October 2011
Avi Ohayon / Prime Minister’s Bureau

If the Knesset approves them by the end of the year, they will take effect by January 1.

The recommendations include the following measures:

b Canceling the increase in gasoline excise taxes. This will save the public NIS 2.5 billion, or specifically 40 agorot per liter of gasoline, 20 agorot per liter of diesel and NIS 34 per ton of coal (for the Israel Electric Corporation ).

b Men will receive two tax credit points per child under three years. This equals NIS 418 a month, or NIS 5,000 a year. Mothers already receive one tax credit per child under 18, and starting January 1, they'll be getting a second one per child under 5.

b People who earn more than NIS 1 million a year will be paying a surtax of 2% on their income.

b Import duties will be canceled on all products that do not have a locally produced alternative.

b Purchase taxes will be reduced in competitive sectors, such as electronics. b Taxes on capital gains will increase from 20% to 25%.

b Corporate taxes will increase to 25%, in place of a planned cut to 23%.

b The plan to cut income and corporate tax rates will be reevaluated in 2014.

While the tax cuts are equal to the tax benefits - NIS 5.7 billion - Netanyahu said citizens would positively feel the difference.

The approval of only the taxation-related parts of the Trajtenberg report raised rumors that the government had bowed to pressure from big business. The committee headed by Prof. Manuel Trajtenberg had made far-reaching recommendations that also called for limiting monopolies and increasing competition.

The Finance Ministry stated in response that the other portions of the report would be brought to the cabinet for approval within the next three weeks.

Legal advisor calls for postponement

As expected, the committee reviewing economic concentration in Israel has come under pressure from the country's tycoons. This pressure led to the committee's decision to postpone by a month its hearings for parties that would be damaged by its recommendations, from early November to early December, a source told TheMarker.

Big businessmen and others asked the committee, the finance minister and top treasury officials to postpone the hearings on the committee's recommendations by 60 days, saying that they had not had enough time to properly prepare responses. In response, the committee accepted the advice of the government's legal adviser, Avi Licht, and postponed the hearings.

Parties interested in appearing before the committee have until November 13 to submit a letter explaining why they are affected or why the recommendations are flawed.

The committee intended to submit its final report to Prime Minister Benjamin Netanyahu by the end of the year, said one member. The goal is to have the Knesset pass the report into law by early January.

Lawyers representing the so-called tycoons attempted to meet with committee members, but the latter rebuffed them.

Licht recommended postponing the hearings due to concerns that the businessmen could petition the High Court of Justice over a refusal. The committee decided that this was a particularly sensitive issue, and that it was best not to get trapped up in legal proceedings over less central matters, such as timetables.