Bank of Israel Governor Stanley Fischer reportedly objects to imposing a surtax on high wage earners, and sources say this may be one of the reasons that the government rejected the Trajtenberg committee's call to impose such a tax.
The committee headed by Manuel Trajtenberg had proposed increasing taxes on the wealthy by imposing a flat tax of up to 2% on all income, including salaries and capital gains. This tax would apply to people who earn more than NIS 1 million, and would be charged on top of other taxes such as income tax.
But Fischer reportedly believes that such a tax would send investments abroad, particularly given the anti-rich public sentiment prevailing.
Given the downsides inherent in such a surtax, and given that it would be intended to raise only NIS 400 million a year, Fischer believes it is not worth the risk.
In general, Fischer is concerned about the public sentiment against businessmen and economic concentration, and feels they have generated an anti-rich atmosphere in general. These factors could make Israel less attractive for major investors, particularly in high-tech; many of these people could easily move abroad.
Fischer himself was one of the people leading the campaign to reduce the concentration of economic power within the hands of a few.
Israel's tax rates for large investors must remain competitive, Fischer reportedly believes. This means that tax rates on rich residents' capital and salaries cannot be much higher than accepted rates around the world.
The Trajtenberg committee had not recommended raising maximum marginal income tax rates by too much, in keeping with the principle that they should not pass 50%, which is considered a psychological threshold after which people lose their incentive to work.
Fischer reportedly agrees that marginal tax rates should not pass 50%.
Fischer's objection to the surtax proposal is believed to be one of the reasons that Finance Minister Yuval Steinitz yanked it from the Trajtenberg-based tax reforms at the last minute before the Knesset vote. Steinitz and Prime Minister Benjamin Netanyahu reportedly agree with Fischer in this regard.
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