Netanyahu Surprises Israel's Finance Minister With Promise to Lower Taxes

It is unlikely that Netanyahu and Kahlon are about to finalize a deal, though Netanyahu's statement reveals his stance on what should be done with higher-than-expected tax revenues that have been flowing into state coffers

Prime Minister Benjamin Netanyahu flanked by his cabinet ministers, October 23, 2017.
Olivier Fitoussi

Prime Minister Benjamin Netanyahu had a surprise for Finance Minister Moshe Kahlon in his speech at Monday’s opening of the Knesset’s winter session. It came in his concluding remarks, giving it added significance. Netanyahu made reference to a plan that would be finalized shortly with Kahlon to lower taxes.

The prime minister, who heads the Likud party, made the statement after praising Kahlon, the head of Kulanu, for the excellent job that Netanyahu said he was doing and after touting the investment that had been made in the country’s infrastructure and economy.

“In this session, we will continue to do good things for the citizens of the country. We will lower taxes based on a plan that the finance minister and I will soon conclude to ease the situation of Israel’s citizens, entrepreneurs, and business owners, particularly new and small businesses,” the prime minister said. “We will pass a plan to support the disabled with the unprecedented sum of 4.2 billion shekels ($1.2 billion). We will pass the nation-state law, which will ensure the Jewish character of the state as set out in the Declaration of Independence while protecting full personal equality for all of Israel’s citizens.”

Finance Minister Kahlon’s associates refused to respond on Monday to the prime minister’s remarks on lowering taxes, which had apparently caught them unprepared. It is thought unlikely that there is an organized agreement that the prime minister and the finance minister are about to finalize, but Netanyahu’s statement does reveal the prime minister’s stance on what should be done with the higher than expected tax revenues that have been flowing into state coffers.

While Kahlon has preferred over the past several weeks to leave a degree of uncertainty over what to do with the additional tax revenue and has refrained from saying that he would lower taxes, Netanyahu used the Knesset speech to show his own hand – and purportedly Kahlon’s as well. This comes against the backdrop of warnings by Bank of Israel Governor Karnit Flug against using the extra tax revenues to reduce taxes. The prime minister didn’t specify whether he advocates lowering the country’s value added tax rate from 17% or whether the tax cuts would apply to corporate or income taxes.

Looking ahead, Netanyahu and Kahlon intend to submit the 2019 state budget to the Knesset by the end of March, when the current winter session of parliament ends. Such a submission would be seven months early, because the usual deadline would be October 31, 2018.

On Sunday, at a meeting of the heads of the heads of the parties in the governing coalition, Kahlon confirmed that his ministry was working to submit the budget for its first reading by the end of the current Knesset session and to have parliament pass the final budget into law by July of next year, when the summer session ends. Normally, the deadline for final passage would be December 31.

The finance minister also signaled that the Economic Arrangements Bill, secondary legislation that accompanies the budget, will be less extensive than it has been.