The Ministry of Finance has released the draft state budget and the Economic Arrangements bill for 2013 -2014. The measures include what the ministry itself calls the biggest spending cut ever imposed.
Among the main steps are a 1.5% rise in income tax from 2014 for all tax brackets; a 1% rise in VAT to 18%; a 1% rise in companies tax to 26%; and the imposition of national insurance payments and health tax on non-working women. The rise in income tax is expected to bring in over NIS 4 billion and the rise in VAT a similar amount.
Other proposals are higher taxes on cigarettes and alcoholic drinks, and abolition of the VAT exemption for tourism services.
On the spending side, a 1% reduction in civil service staff is planned, and a hiring freeze until the end of 2015. Child allowance will be cut to NIS 140 per month for each child, and the state will cease to subsidize after-school care for children nine years of age and over. Infrastructure projects will be deferred, and the planned rise in the education budget will be reduced. Five Israeli missions overseas will be closed, and overseas trips by ministers will be cut back. Several magistrates courts will be closed.
The cuts are estimated at NIS 7 billion. Government spending this year will be NIS 304.5 billion, 7% more than in 2012. In 2014, government spending will be NIS 307.9 billion (representing a rise of 3.35%), and the fiscal deficit will be 3% of GDP, assuming that GDP grows by 3.3%.
Among the structural reforms planned are a new version of the "Wisconsin" welfare to work program; full exploitation of earning potential in the criteria for subsidized housing; core curriculum studies in haredi (ultra-Orthodox) educational institutions; differential funding for education in poorer local authorities (i.e., Dimona will get more than Tel Aviv).
The budget proposals will be discussed by the government next week.
Published by Globes [online], Israel business news - www.globes-online.com - on May 7, 2013
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