Treasury Hopes to Use Budget Surplus to Cut Taxes and Debt

The Finance Ministry is preparing a plan for using the large tax surpluses that are accumulating for 2007. Estimates are that the surplus will reach NIS 10 billion for the year.

Some of the excess tax money is a result of special, one-time payments, while the rest stems largely from high economic growth.

The treasury's contingency plan includes the further reduction of a number of taxes and the use of a large part of the surplus to reduce the national debt. By decreasing the debt, the treasury hopes to win the support of the Bank of Israel, which is aware of the plan.

The basis of the scheme is a further reduction in taxes, in particular speeding up the planned reduction in income taxes.

The treasury is also considering reductions in two other main taxes: purchase taxes on imported goods, and the purchase tax on residential housing.

Purchase taxes on imported goods fall on cars, electrical appliances and cosmetics, among other things. The first stage of such reductions took place a year ago.

The treasury is expected to take such a step again to lower car prices and improve the vehicle market because the largest part of the cost of a new car is taxes, which significantly lower the competition over price.

The second tax to be cut is purchase tax on housing. However, the treasury plans - it seems - to recommend this only for a primary residence, and not for housing intended for investment purposes. Also, the reduction will not apply to luxury residences, but only those moderately priced.

For now the plan is being filed away - a contingency plan - because there is no Finance Minister to make a decision about it.

Nevertheless, it is almost certain that later the political echelon will find a way to discuss the plan and approve it.

The proposal is meant to encourage economic growth, and to lower the budget surpluses, reducing political pressure in the Knesset to increase government spending and breach the budgetary framework.