S&P warns: Raise taxes, or credit rating will drop
Company tells officials that it's worried about Israel's failure to meet its deficit goal and says that country's credit rating will suffer if the government doesn't decide to raise income tax soon
If Israel's government does not make a decision in the next few weks to raise income taxes in 2013, the country's credit rating will suffer, the Standard & Poor's credit rating agency has warned, only 10 months after raising Israel's credit rating from A to A+.
S&P's London-based regional directorship is expected to announce its decision on Israel's credit rating at the beginning of September.
Related stories:
- Fitch gives Israel 'A' credit rating
- Steinitz asks Moody's to raise Israel's rating
- S&P cuts IDB credit rating
If S&P decides to drop Israel's rating, it would do so in two stages. First, the company would change the country's outlook from "stable" to "negative," an indication of its expectations. If the performance of the Israeli market continues to disappoint, S&P could then drop the long-term credit rating itself from A+ to A.
The veiled threat from members of the S&P delegation that recently met with local economic leaders was intended to make it clear to Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz that the international agency sees the government's decision to adjust the deficit target in a serious light. The government recently approved Steinitz' proposal to double the original target from 3% of the GDP (some NIS 30 million - or about $7.5 million))
S&P's focus on the need to raise income tax comes as a test for the prime minister's declared determination to hold to the deficit target while reducing direct taxes.
According to estimates, even with the increased deficit target, the government will have to impose some NIS 7 billion (about $1.8 billion) in additional taxes in 2013. A 1% rise in the VAT is considered a fait accompli and is expected to bring some NIS 4 billion (about $1 billion) into the state's coffers, but the government will need to raise the rest through raising income tax for individuals by 1%.
