Treasury Proposes Aid to Charities to Compensate for VAT

Finance Minister Yuval Steinitz has proposed granting aid to nonprofit organizations that give food to the needy as compensation for levying value-added tax on fruit and vegetables. Knesset members predict the treasury will allocate about NIS 20 million to the project.

Steinitz came up with the offer, which he presented to a group of coalition MKs, in response to the multitude of complaints he has received about the VAT proposal. One of those complaints has been that the additional tax would make it difficult for charitable organizations to provide food aid, as a large part of their standard food package is made up of fruits and vegetables.

In addition, the finance minister announced that he would allot another NIS 150 million as compensation to the weakest 20% of the population. One possibility is to do this through increased welfare allowances; another is higher subsidies for public transportation.

To win support for the budget from his coalition partners - Shas, Labor, United Torah Judaism and Yisrael Beiteinu - the treasury will have to increase its support for the poor, the MKs said.

Interior Minister and Shas chairman Eli Yishai has objected vociferously in recent days to VAT on fruits and vegetables. After the Knesset votes on the first reading of the budget and the Economic Arrangements Bill, MKs expect Yishai to be offered additional proposals for compensating the poor to win Shas' support for the budget's final passage. If Shas can be won over on this issue, the MKs said, the other coalition partners will fall into line.

Several Likud MKs also oppose the VAT proposal, but Steinitz assumes they will rescind their opposition if the poorest 20% are compensated and the other coalition parties agree.

Steinitz met yesterday with members of the Knesset Finance Committee, including chairman Moshe Gafni (UTJ), as part of his effort to round up a majority for the 2009-2010 budget.

On Monday, he will submit the budget bill and the Economic Arrangements Bill to the Knesset, and the debate in the plenum will open on Wednesday. The vote on the first reading is scheduled for Thursday.

Treasury sources expect both bills to pass, even though certain sections have numerous opponents. In addition to the VAT on friuts and vegetables, MKs oppose levying VAT on tourism services, revoking tax credits for childcare expenses and cutting certain benefits for public sector employees.

The fight over these items will take place in committee, and during the bills' second and third readings, now scheduled for July 15.

"The main problem is that the 2009-2010 state budget is stretched to the limit," said a source close to Steinitz. "The agreements on allocating funds to various purposes and ministries has brought us to a situation in which we are presenting the Knesset with a budget with no reserves. As opposed to previous years, this year's budget proposal has no money set aside for negotiations with MKs and factions. The negotiations with the coalition factions were completed with the cabinet's approval of the budget, and therefore, we cannot agree to any significant compromises."