The Ministry of Finance rushed to pass the package of spending cuts and tax rises in order to avert an imminent downgrade of Israel's credit rating, Minister of Finance Yuval Steinitz reveals in an interview with "Globes" editor-in-chief Hagai Golan on the Globes TV "Face to Face" program.
"It was vital to do it now, otherwise interest rates in Israel would have risen, we would have paid billions next year at the expense of other things, and within a few weeks our credit rating would have fallen," Steinitz says in the interview. "If, heaven forbid, we display irresponsibility and start to fall, since everyone knows that we have no safety net no Ben Bernanke of Mario Draghi who can give us billions of dollars or euro as to Greece and Spain - our fall could be much faster."
Then the main reason for the steps that were taken was the fear of a downgrade of Israel's credit rating on international markets by the rating agencies.
"Certainly… so that what happened to Spain won't happen to us. Spain's crash started with them setting a deficit target, and the Spanish government and parliament failing to approve the measures designed to meet the target."
Why didn't you go for abolition of exemptions? We know that every year there are NIS 40 billion hiding in all kinds of places.
"You know my position. I am in favor of abolishing the exemption from VAT for fresh produce. It creates a lot of black money around it, a huge amount of tax evasion. I wanted to cancel it. Unfortunately, this is one of the few things I wanted to promote and didn't succeed in."
Steinitz talks a great deal about the war on the black market, saying, "For the first time, we are giving the Tax Authority teeth and claws to collect taxes, to battle tax evasion aggressively, in such a way that within a few years we shall be able to reduce the black economy from 22%, which is its dimensions in Southern Europe, in Italy, Spain and Greece, to 10-11%, which is its dimensions in well-run countries such as Germany, Britain, the US. This is genuine sharing of the burden and equality, when you also take taxes from those who have evaded taxation up to now."
However you look at it, from whatever angle, Netanyahu has in effect gone back on the strategy he has always championed, of reducing taxation. He has basically made a conceptual about-face. Do you agree?
"Since the time Netanyahu was minister of finance, he has begun a process of lowering taxes that continued after he left that office according to a multi-year plan. Direct taxes on the middle classes have fallen considerably, to the extent that weaker members of society and the lower middle class do not pay tax at all. The upper middle class pays some of the lowest taxes in the Western world.
"I don't recall the numbers exactly, but from 2005 until today, direct taxation on those who earn NIS 20,000 or NIS 30,000 has fallen 8%, and now 1% has been added. After a fall of 8%, 1% has been added, so it has fallen 7%. This is a correction arising from the situation; it's not a change of direction, it's a correction. And what do they say to the prime minister? First of all comes the voice of the protest movement, and some of the economists along with them, saying that taxes mustn't be cut because services must be improved and the public must be given more. Now, when the prime minister raises taxes 1%, they attack him and say, 'Why are you raising taxes?'."
Published by Globes [online], Israel business news - www.globes-online.com - on August 1, 2012
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