Israel's Finance Minister Hasn’t Given Up on His Plans to Lower Taxes

Moshe Kahlon is still hoping that the second-quarter figures will be stronger and that in July he can sit with top ministry officials to discuss a tax-cutting program

Finance Minister Moshe Kahlon, May 5, 2018.
Emil salman

Finance Minister Moshe Kahlon hasn’t given up on his plans to lower taxes.

The minister was disappointed when first-quarter budget data, released nearly a month ago, showed that tax revenues surpassed targets but not by enough to justify another round of tax reductions. Sources say, however, that Kahlon is still hoping that the second-quarter figures will be stronger and that in July he can sit with top ministry officials to discuss a tax-cutting program.

The treasury budget data for April released on Sunday showed a budget surplus for the month of 500 million shekels ($138.3 million). That brought the fiscal deficit for the first four months of the year to 1.6 billion shekels, down from 2.9 billion the same time in 2017.

The deficit in the 12 months through April was just 1.8% of gross domestic product, way below the 2.9% for 2018 set in the budget, according to the treasury. But the 12-month figure includes the months of August-October 2017 when the government enjoyed a windfall of revenues. Officials said that this year, they expect the deficit to widen starting in August.

Meanwhile, Finance Ministry figures showed that spending has been running faster than budgeted – it was up 6.2% in January-April from the same time in 2017, while the budget had called for just a 4% rise. Civilian spending was up 6.6%, versus the 5.3% budgeted for them, defense spending grew even faster, rising 5% versus the 0.5% projected.

Tax collections rose a nominal 5.9% to 106.1 billion shekels in January-April. Taking into account changes in the tax code, the rate of growth was a more modest 4%. The Finance Ministry said trend data pointed to continued growth in tax revenue, growing by 6.1% after inflation on average in each of the last five years.