Bar-On to Trim 2009 Budget by NIS 6 Billion

Finance Minister Ronnie Bar-On is to tell the government today that with the expected fall in economic growth and tax revenues next year, the 2009 state budget should be trimmed by NIS 6 billion.

Bar-On is expected to report to the government on the plans for approving next year's budget and arrangements law over the coming months.

The treasury intends to begin debates in May in order to complete them by the end of August. This schedule will ensure that the Knesset will have sufficient time to deliberate on details of the budget and the clauses of the arrangements law by voting time in late December.

Bar-On may also take the opportunity today to announce the treasury's plans for tax cuts in coming months. These include reduction of VAT by 0.5% to 15.0%, which will cut state revenues by NIS 1.5 billion, and lowering the maximum personal marginal tax (which includes income tax, National Insurance and health tax) from 47% to 40% and company tax from the current 27% to 20%, in 2012. Bar-On will also tell the government that with prior commitments, including the defense system (based on the Brodet Commission findings) and the education system (the agreement with the teachers' association), the government will need to trim the 2009 budget by NIS 6 billion, with no funding available for other items. The treasury has recently said that it is considering revising the tax exemptions totaling NIS 34.7 billion. Senior treasury officials say that these benefits were historically patched together with no broad, comprehensive consideration. The 2009 budget will also give careful thought to important issues such as the level of services the government is to provide to citizens.

Senior treasury officers say that there has not yet been decline in tax revenues compared to last year. The first quarter of 2008 saw tax revenues of about NIS 50 billion, similar to 2007 levels during the same period. With targeted 2008 tax revenues of NIS 190 billion, first quarter results point to a very real possibility that this figure may be exceeded by up to NIS 10 billion.