The Finance Ministry will implement massive cuts to the 2013 and 2014 budgets, totalling NIS 30 billion ($8.1 billion) over the next two years. The plan seeks to cut NIS 10 billion ($2.7 billion) from the government’s budget in 2013 and another NIS 20 billion ($5.4 billion) in 2014, as well as raising NIS 4 billion shekels ($1.1 billion) from the public sector through raised taxes and other measures.
One of the major changes will be an initial 1 percent hike in the value added tax (VAT), bringing it up to 18%. The VAT exemption on fruits and vegetables will also be annulled. There will be a NIS 3 billion ($813 million) cut in subsidies for children and public sector salaries will be cut by NIS 4 billion ($1.1 billion). Retirement age for women will be raised to 67, from the current age of 62.
The Finance Ministry’s plan is in its final stages and will likely be presented later in the week to the new finance minister, Yair Lapid.
The plan will cut NIS 5 billion ($1.4 billion) from the defense budget in 2014 and half of that amount in the 2013 budget. The cuts will also affect local authorities, including NIS 350-700 million ($94.9-190 million) in cuts from municipalities and a 5-8% rise in property taxes beyond inflation.
There is also a planned 25% cut on tax breaks for advanced study savings funds and planned elimination of tax breaks for shift workers and high-tech workers, as well as the elimination of the VAT exemption in Eilat. These measures are projected to bring in NIS 700 million ($190 million) annually.
In the real estate field, the Finance Ministry has suggested cutting the capital gains tax exemption for second apartment ownership and increasing the purchasing tax on luxury apartments and investment acquisitions. In addition, higher taxes will be imposed on foreign investors involved in real estate transactions and those purchasing residential apartments, a construction delay tax will be levied on contractors and a fine for companies and real estate entrepreneurs who build on land not freed by the Israel Lands Administration for construction.
At the same time, the Finance Ministry proposes eliminating all housing benefits for haredim (ultra-Orthodox), shifting affordable housing to veteran soldiers and young couples with both spouses working. The plan also includes the construction of 55,000 apartments over the next two years; 15% of the new apartments will be designated as affordable housing, and the construction of student housing in ten city centers will be moved forward as well. The construction plans also include apartments for rent, as well as purchase.