The cabinet today, Monday, is expected to approve a 1% increase in value added tax (VAT) as well as a number of price hikes which many feel will make increasingly difficult for the frum tzibur.

Defending his position, Finance Minister Dr. Yuval Shteinitz on Sunday morning told Israel Radio “we don’t have a federal government or a European Union to bail us out”, explaining that during the past three years, the government’s wisdom and careful money management has permitted Israel to ride out the global financial crisis better than most Western countries, rejecting harsh criticism that his policies target the weaker sectors of society while the wealthy do not seem to be feeling the crunch of the planned tax reductions and price hikes. The plan is a comprehensive 14.4 billion NIS fiscal package.

The additional 1%VAT is expected to generate 750 million NIS annually. In addition, the cabinet will canceling approved tax exemptions, such as adding VAT on fruits and vegetables exported abroad, VAT in Eilat, now a VAT free tourist city, a betterment tax and other measures expected to raise an additional 10 billion NIS annually.

Some of the increases will be felt as follows:

a. Beginning January 1, 2013, a 1% income tax hike for anyone earning over 8,801 NIS gross pay monthly.

b. Cancelation of a tax reduction of 2% decided upon this year by the Knesset Finance Committee for those earning 8,000-14,000 NIS monthly.

c. Highest tax bracket earners income tax remains at 48%.

d. A ‘rich tax’ of 2% on anyone earning over 800,000 NIS annually.

e. Increase in VAT to 17%.

f. 10,000 NIS tax on cars categorized as ‘air polluters’.

g. Cancelation of planned reduction in purchase tax on electronics.

h. Increase in real estate purchase tax after purchase of one’s first home.

i. 7% increase in the standard subsidized load of bread.

Cutting Government Spending:

a. Defense Ministry (18 million NIS)

b. Public Security Ministry (40 million NIS)

c. Trade & Industry (80 million NIS)

d. Higher Education (66 million NIS)

e. Prime Minister’s Office (40 million NIS)

f. Transportation & Infrastructure (36 million NIS)

g. Foreign Ministry (32.2 million NIS)

h. Bituach Leumi (21 million NIS)

i. Health (13.8 million NIS)

j. Social Welfare (7 million NIS)

The plan enjoys the total support of Bank of Israel Governor Prof. Stanley Fisher.

At the start of the weekly cabinet meeting, Prime Minister Binyamin Netanyahu made the following remarks regarding the plan.

“For the past three years, we have been in a global economic crisis, and we have succeeded in maintaining the Israeli economy during this crisis and in protecting jobs in Israel; in this we are exceptional. It must now be understood that the global economic crisis is not only not recovering, it is worsening, and as it worsens, we must take additional steps to protect the Israeli economy and Israelis’ jobs. Today, we will submit steps that are designed to do so.

“I emphasize that governments that did not act in time, did not take determined action, and did not act responsibly, caused great harm to their people, both in terms of mass unemployment and in terms of crumbling social systems. We will not allow that to happen. I will not allow that to happen. We need to act responsibly, with determination and in time.

“And so we are submitting steps that, even if they are measured, are harsh. We are talking about raising income tax by 1%, mainly on the upper and middle classes. We are talking about surtax on the very wealthy. We are talking about 0.5% tax on employers and a 1% increase in VAT. This is not easy. This is not impossible. It is not easy and it requires determination and I can tell you: This demands courage from a collective leadership. I ask ministers to show this responsibility and determination in order to continue protecting the Israeli economy.

“We will exact more from those who have more; we will exact less from those who have less. But we will not hurt any of those actions we have taken to lower the cost of living. Close to 300,000 families will still receive 800 NIS a month for free education which starts in another two weeks. Hundreds of thousands of families, close to 400,000 families, will receive hundreds of shekels in tax credit points.

“When I consider what we have done in the cellular telephone reforms and, in free dental care, we are talking about hundreds of shekels that are going into citizens’ pockets in order to make things easier. However, I do know that these steps are not simple. They are not simple, but they are necessary, measured and urgent in order to protect the Israeli economy and jobs in Israel. This is what a responsible government does.

“There is debate. There is a lot of populist criticism that it is possible to spend and spend without coverage and without account. This is how one reaches a collapse like in several European countries. We will not go there. We will maintain the Israeli economy and Israelis’ jobs.”

Finance Minister Dr. Yuval Shteinitz added, “As the prime minister pointed out, for three-and-a-half years, we have been fighting to defend the Israeli economy and Israeli citizens, and we will continue to show courage, responsibility and determination in order to do this. In all that we have done, the most socially important thing that we have done is instead of creating 150,000 jobs, over these three years we have created 330,000 new jobs, avoided mass unemployment and a 12% drop in average household income as in the US and more than a few European countries.

“In order to continue this, we must prove that we will meet the new deficit target and maintain the State of Israel’s good image as an island of economic stability and place for investment. This is not only for the economy – it is for the people. We see what is happening to people in Spain, Greece, the US and Europe – and we will watch over Israel’s citizens.”

(YWN – Israel Desk, Jerusalem)