Knesset to Get Budget This Week, but the Bill Faces Bumpy Ride

Zvi Zrahiya
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Zvi Zrahiya

The 2013-2014 budget bill and accompanying Economic Arrangements Bill being presented to the Knesset on Tuesday are expected to undergo substantial changes before they become law, due to reservations over some of the austerity measures. However, elimination or modification of the controversial provisions could cost the state billions of shekels, at a time when the Finance Ministry is seeking ways to cover a major budget deficit.

As an alternative to some of the contentious austerity measures, Knesset Finance Committee Chairman Nissan Slomiansky (Habayit Hayehudi ) and other MKs have suggested increasing the tax rates on major corporations, and royalties that companies pay for developing and extracting the country's natural resources. Slomiansky has also suggested stepped up collection efforts against unreported income and curbs on creative tax planning.

One of the major provisions in the proposed budget that has encountered substantial opposition is the increase of the income tax rate by 1.5 percentage points for all wage earners. Such a provision would provide an estimated NIS 4 billion a year for the state's coffers.

Nonetheless, Slomiansky and MK Gila Gamliel (Likud ), who is coalition whip on the Finance Committee, have both announced their opposition recently to imposing such a tax hike across the board. Committee members propose limiting the hike to 1 percentage point and imposing it only on higher income earners - for example, those grossing at least NIS 10,000 to NIS 14,000 per month.

Opposition has also been expressed to the provision that would impose a 3.5% purchase tax on those trading up to more expensive homes. The provision is expected to generate about a billion shekels in additional taxes. The law currently provides an exemption from the tax on sums of up to NIS 1.4 million.

Finance Minister Yair Lapid, whose ministry prepared the proposed budget, recently said he would be ready to entertain changes to his ministry's proposal on the subject. Among the alternatives under consideration are a purchase tax of 1% on amounts up to NIS 1.4 million, and the elimination of the exemption on taxation of rent on sums up to NIS 4,900 per month.

The vote on the first of the three readings required before the budget can be passed into law will take place on Monday of next week. It is not coming earlier due to a working visit to Poland by Prime Minister Benjamin Netanyahu and six of his cabinet colleagues this Wednesday. The final votes on the second and third reading of what could be a modified version of the initial budget must be passed by July 31.

Among other clauses attracting opposition is a provision that would curb tax concessions on pensions of those earning more than NIS 15,000. That provision is projected to generate around NIS 1 billion a year. Lapid and Knesset Speaker Yuli Edelstein resolved to have the provision referred to the Knesset Labor, Welfare and Health Committee. The committee is headed by Haim Katz (Likud ), who recently said he opposes the provision as currently drafted. It is expected to be changed in committee.

The budget bill also eliminates the 1-point tax credit given to students when they complete their bachelor's degree, and the half point credit that master's degree recipients receive for a year after obtaining their degrees. Eliminating the credit would generate an additional NIS 200 million a year for the state.

And then there is the proposed imposition of health taxes and National Insurance Institute payments on housewives. They are currently exempt from the payments. Those changes would generate an estimated NIS 675 million a year in state revenues, but the Finance Ministry has failed in the past to impose such taxes.

Opposition has also been expressed over reduced municipal taxes (arnona ) for the elderly, and funding cuts for after-school programming and school nutrition programs.

Knesset Finance Committee Chairman Nissan Slomiansky.Credit: Nir Keidar