Legislated tax cuts will reduce taxation rates permanently, and will thereby make it more difficult to meet the deficit target in future years, Bank of Israel Research Department director Prof. Michel Strawczynski said yesterday. Strawczynski thus echoed the central bank's official stance, as expressed by Governor of the Bank of Israel Karnit Flug, who said last month that "if we lower taxes now, we'll have to raise them in 2019."
Speaking at a conference held by MBT Consultants, Strawczynski said that an additional consideration weighing against tax cuts was the fact that the Israeli economy was at full employment, so that reduced taxation would have little effect on economic activity. He said that no special measures were required in the budget to encourage economic activity, since the economy was on a track of constant growth.
Minister of Finance Moshe Kahlon has yet to decide how to distribute a tax surplus of NIS 16 billion or more in the 2017 budget arising from the one-time transactions of the sale of the controlling stake in Keter Plastic (NIS 1.2 billion) and the sale of Mobileye (NIS 4.1 billion), as well as the Israel Tax Authority's collection operation that brought in NIS 13 billion in taxes above the collection forecast.
It is believed that Kahlon will choose to use most of the money to retire government debt, and that the rest will be used for temporary tax benefits, such as raising the number of tax credit points for young working couples. Kahlon has already announced the abolition of customs duties amounting to NIS 140 million annually.
Published by Globes [online], Israel business news - www.globes-online.com - on December 11, 2017
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