Treasury Targets the Rich With Tax Proposals

Finance Ministry throws a wider net in casting for new ways to close the budget deficit

The Finance Ministry and the Prime Minister's Office are looking at several proposals for raising taxes without backtracking on promises by Prime Minister Benjamin Netanyahu to reduce income and corporate taxes. Options include taxes that focus on the wealthy as well as ones that hit everyone, such as higher VAT.

The Prime Minister's Office would prefer to target the rich, especially the top fifth percentile. It is looking into raising the tax ceiling for National Insurance Institute and medical insurance payments, which is currently NIS 38,415 a month. The Finance Ministry estimates that by raising that ceiling to NIS 70,000, the Tax Authority would gain an additional NIS 700-800 million a year.

Silvan Shalom tried to remove the tax ceiling entirely when he was finance minister in 2002, but more than a few rich Israelis found themselves a tax shelter by establishing companies: Instead of drawing a salary, they withdrew dividends. To keep that from happening this time around, taxes on dividends would have to be raised too, so that drawing the equivalent of a salary from a private company is no longer a preferable option.

Tax on luxury cars

Another way to go is taxing luxury cars, especially gas-hogging SUVs, which can often cost hundreds of thousands of shekels. Treasury bean-counters say this could bring another NIS 400 million into state coffers, and it has the added selling point of environmentalism. It's not just a tax on the rich, it's a tax on the filthy rich. But to learn exactly how they arrived at this figure - which vehicles will be taxed, and by how much - you'll have to wait until more information is released.

Also in the treasury's sights is increasing the property betterment tax (mas shevah) for those who own more than one residence.

Finance Ministry officials said yesterday that apart from the above possibilities, they don't intend to increase the tax burden on the wealthy. That also means an end to talk of taxing yachts and private planes, partly because some of these are purchased abroad, but also because it wouldn't actually bring in much tax revenue.

Other ideas, such as taxing overseas travel and perhaps even instituting an inheritance tax, are unlikely to pass in the end.

The problems with the proposed taxes on the rich is that they won't actually bring in that much money, and thus won't solve Israel's budget problems. Since Netanyahu refuses to discuss stopping his plans to cut income and corporate taxes, the treasury is casting its eye on the only major source of tax revenue left: VAT. Raising VAT is considered a regressive tax, since it affects lower earners more than higher earners, who have more disposable income, but it's the only thing that could bring in the billions of shekels the state needs. A 1% rise in VAT, from 15.5% to 16.5%, should net the state NIS 3.8 billion a year.