Public to Pay NIS 10b More in Taxes?

A very long time ago, about five months back, when Prime Minister Benjamin Netanyahu was still only an MK and campaigning for his present job, he promised to lower taxes. ?Lowering taxes is like jet fuel for the economy,? he said in an interview with TheMarker just 10 days before the election.?

Since then he has changed his tune, if not in words then at least in deed. If the proposed budget is passed by the Knesset in its present form, instead of seeing their tax burden decline Israelis will be paying about NIS 10 billion a year more in taxes.?

?True, they are telling me there is a need to increase government spending and raise taxes, because that is what is being done in all sorts of places around the world,? said Netanyahu the candidate, ?but I disagree. I have read different studies. My entire experience, and everything I understand, works in the opposite way,? he told TheMarker.?

Now taxes have gone up ? or will go up soon ? on a long list of necessities and other items: bread, water, gasoline, fruits and vegetables, National Insurance Institute payments and health care ? and just about anything else bought by consumers. And of course it is the poorest who are hit hardest by the higher taxes.?

Netanyahu promised, time after time, to lower taxes once he was elected, not only in that interview. In fact, the main plank of his economic platform, his mantra from his successful term as finance minister in 2003-2005, was that tax cuts would create economic growth.?

In a meeting with business people in late December Netanyahu said: ?Since the economy is in any case in a period of crisis, in which it is impossible to strictly limit the budget deficit, it would be appropriate to take advantage of the time to accelerate tax cuts.??

But all that was a long time ago, and Netanyahu seems to have changed his opinion since then. He has approved higher taxes, new taxes and canceled tax breaks worth NIS 10 billion a year. The steep fall-off in tax revenues in comparison to the original budget forecasts has dug an estimated NIS 60 billion hole in the state budget for 2009 and 2010, and now Netanyahu and Finance Minister Yuval Steinitz need to find a way to fill it in.?

As of Wednesday, the first day of July and of the second half of the year, Israelis will begin feeling the change in taxes where it hurts. Everything they buy in the supermarket has gone up 1% as value added tax rose from 15.5% to 16.5% on July 1. This increase is expected to bring in an additional NIS 3.6 billion a year.?

Other items included in the two-year 2009-2010 budget that will hurt consumer?s pocketbooks are the ?drought tax? on water and higher payments to the National Insurance Institute for high-earners.?

A number of issues are still open and waiting for Knesset approval as part of the budget, such as VAT on fruits and vegetables, which will bring in a planned NIS 1.8 billion a year, though many MKs oppose the change ? and Shas has threatened to quit the coalition if it passes. The same goes for levying VAT on tourism services, which Yisrael Beiteinu strongly opposes and is threatening to vote against. That would bring in about NIS 500 million a year.?

Fuel taxes also went up in a surprise move on May 21, and this will cost the public about a billion shekels a year.?

Cigarette taxes went up this week, worth an additional NIS 400 million a year to the treasury. ?

The higher payments to the National Insurance Institute from those grossing between NIS 40,000 a month and NIS 80,000 a month will add up to NIS 915 million a year, and changes in how the health tax is levied on both the poor and the rich will bring in about NIS 300-350 million more per year.?

The new tax of NIS 20 per cubic meter of water over a basic monthly per-household quota will cost the public another NIS 800 million to NIS 1.2 billion a year ? starting two days ago.?

Finally, the treasury is trying to reduce two tax breaks. The smaller one, worth only some NIS 50 million a year, is the extra personal tax exemption for new college graduates for three years, which will be cut in half.?

The big money is the NIS 1.7 billion the treasury says it will save by canceling the tax deduction for childcare expenses for working mothers. The treasury has proposed an alternative ? and much cheaper ? proposal, to be phased in through 2015.