Finance Minister Yair Lapid
Photo: Gil Yohanan
Budget proposal: Income tax up 1.5%
Finance Ministry's economic plan for 2013-2014 includes NIS 6.5 billion cut in government activity this year, NIS 18 billion cut next year. NIS 4 billion cut planned in Defense budget, child benefits to be slashed by NIS 2 billion
The Finance Ministry staff has finalized its proposal for the 2013-2014 economic plan, which has been sent to the government ministers and will be discussed by the cabinet on Monday.
The plan suggests that the Defense Ministry's basic budget for 2014 will stand at NIS 54.6 billion ($15.3 billion), a NIS 4 billion ($1.12 billion) budget cut. Treasury officials said the decision was subject to Prime Minister Benjamin Netanyahu's
approval.
The proposal includes cuts of NIS 6.5 billion (about $1.8 billion) in the government's activity in 2013, and NIS 18 billion ($5 billion) cuts in 2014.
Coalition Divide
Attila Somfalvi
Habayit Hayehudi member meets with Netanyahu, stresses that party will not support budget if cuts to West Bank settlements are presented
In addition, the plan proposes tax hikes which will come into force immediately, and others which will be implemented in the beginning of 2014. The tax hikes are expected to increase the State's income by NIS 4 billion ($1.2 billion) in 2013 and NIS 14 billion ($3.9 billion) in 2014.
The plan also includes a series of economic steps advanced by the Finance Ministry as part of the Arrangements Law.
According to the proposal, income tax will be raised by 1.5% as of 2014, value added tax will go up by 1% to a level of 18%, corporate tax will increase to 26%, and taxes on cigarettes and alcohol will be raised.
In addition, housewives will now be forced to pay for national insurance and health insurance.
The proposal includes an immediate 1% cut in manpower in the Civil Service, and another 1% cut in early 2014. In addition, no new positions will be approved in the Civil Service until 2015, and as of that year the overtime budget will be slashed by 10%.
The plan also includes a NIS 1.5 billion ($420 million) cut in the education budget every year and a reduction of close to NIS 2 billion ($560 million) a year in child benefits. The Transportation Ministry budget will be cut by NIS 1.2 billion by postponing ministry's road building projects across the country.
Buildng of new roads to be postponed (Photo: Ido Erez)
The combination of reducing spending cuts and increasing income is aimed at helping the government bring the 2013 deficit as close as possible to a 4.65% level and restore a reasonable deficit level (3%) in 2014.
The budget cut is also meant to allow the government to maintain the spending limitation dictated by the Budget Law, which states that the government's spending cannot grow beyond a certain level, regardless of its income from taxes.
According to a proposal approved by the government on Sunday, the government will meet the spending limitation in 2014, but will exceed it in 2013 by NIS 6.5 billion ($1.8 billion).
It should be noted, however, that this budget proposal is still subject to changes. It will be discussed by the government on Monday, in a special and long meeting which will allow the ministers to present their reservations over the suggested moves.
Different sections in the budget proposal may be removed or amended in accordance with ministers' demands, before the final proposal is submitted to the Knesset's review by early June. The proposal will then be handed over to the Finance Committee for further revisions before it is submitted to the Knesset's approval by August 1 at the latest.
