The Bank of Israel is warning the government against increasing public spending because of a temporary surge in tax revenues. According to the Bank of Israel, this surge could quickly vanish, resulting in a larger deficit than planned that would increase public debt.
The Bank of Israel notes that cutting the tax base, in other words reducing income tax for the public at large, will be financed by higher taxes on kibbutzim (collective settlements), taxes on owners of three or more housing units, and an additional tax on employers. The Bank of Israel economists also write that since the Israeli economy is in a state of full employment, it is important for the two-year budget to focus on increasing productivity and making the regulatory environment friendly to growth, while improving human capital and physical infrastructure in Israel.
"Experience in the recent past in Israel shows that a tax revenues boom based on developments in specific markets is liable to quickly disappear, thereby causing a rapid increase in the deficit. For this reason, the risks incurred by the current increase in permanent spending, combined with the reduction in the tax base, are significant," the Bank of Israel economists wrote.
Published by Globes [online], Israel business news - www.globes-online.com - on August 16, 2016
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