Treasury to Earmark Some Surplus Tax Revenue for Debt Reduction

But it also insists, to central bank chagrin, on accelerating income tax cuts, lowering tax on imports

The government will apparently run a substatial surplus in 2007, barring nasty developments. It could run as high as NIS 10 million, estimate treasury sources, and the question is what to do with the money. The Bank of Israel has been urging treasury officials to stop introducing new tax cuts and use excess tax revenue to reduce Israel's crushing national debt, a plea that has evidently not fallen on entirely deaf ears.

Some of the surplus tax income is due to nonrecurring items, but most stems from Israel's brisk economic growth.

The Finance Ministry does intend to reduce some taxes further, and to accelerate its plan to cut income tax. Purchase tax on importer goods and on housing will also drop. However, it now agrees to use much of the surplus to reduce the national debt, a step the Bank of Israel will surely applaud.

Purchase taxes on imported goods applies to cars, electrical appliances and cosmetics, among other things. The treasury started shaving the tax a year ago.

Why lower the tax on new cars? Because the largest part of the cost of a new car is taxes, which significantly lowers the competition between importers over price. And the more expensive new cars are, the more Israelis tend to keep driving old ones, which pollute more and offer less safety.

By the way, entrepreneurs take note: any tax relief on housing applies only to primary residences, not for housing intended for investment purposes.

Also, the reduction will not apply to luxury residences, only to moderately priced homes.

But all this is theory, and it's being filed away, because Israel has no finance minister to rule. At some point, it will, though, and the future finance minister is likely to approve it.