The socioeconomic cabinet was in disarray today over the recommendations by the Sheshinski 2 Committee for the payments the state will receive on its natural resources. The recommendations mainly affect payments of taxes and royalties by Israel Chemicals (TASE: ICL: NYSE: ICL). Minister of the Economy Aryeh Deri abstained on the vote on the recommendations, while Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz left the meeting and did not vote, and Prime Minister Benjamin Netanyahu did not vote because he did not reach the meeting in time.
The recommendations were eventually approved, despite the difficulties raised by senior cabinet ministers. Minister of Construction and Housing Yoav Galant abstained in the vote, but all the other ministers voted in favor, and the recommendations were passed. The cabinet also approved the reform easing restrictions on food imports and reforms in fishing, poultry and livestock, and sheep and goat cheese.
Deri's office said in response, "The Minister of the Economy and the Minister of the Development of the Negev and Galilee abstained in the vote on the Sheshinski 2 bill because it is liable to strike a severe blow at the Negev, leading to major layoffs. The Ministry of the Economy professionally opposes the clause stating that business involving production of natural resources is not an industry, and is therefore not entitled to benefits under the Law for the Encouragement of Capital Investment. This will have momentous consequences for continued industrial development in outlying areas and incentives for investors to make investments in Israel, thereby creating more jobs."
Israel Chemicals and Israel Corporation (TASE: ILCO), controlled by Idan Ofer, have exerted great pressure on the government not to approve the Sheshinski 2 recommendations, and have threatened that the measure will lead to extensive layoffs in the Negev. Israel Chemicals has already announced a halt in its investments in the Negev.
Steinitz surprised many of his colleagues today by leaving the socioeconomic cabinet meeting shortly before the vote on implementation of the recommendations in the framework of the Economic Arrangements bill attached to 2015-2016 budget. Asked why he had not supported the bill, Steinitz answered that he was not happy with the plan that had been presented, but refused to say anything more about it. Steinitz's failure to vote on the law was particularly surprising, given his close professional and personal relations with Prof. Eitan Sheshinski, who headed the committee. Steinitz recently brought Sheshinski back to the Ministry of National Infrastructure, Energy, and Water Resources as a senior professional consultant.
Then-Minister of the Economy Naftali Bennett and then-Minister of National Infrastructure, Energy, and Water Resources Silvan Shalom voted against approving the Sheshinski Committee recommendations in the previous government. The leaders of Israel Corporation have waged a bitter struggle against inserting the Shehinski recommendations into the Economic Arrangements bill, but all their efforts failed to prevent it. Minister of Finance Moshe Kahlon and the professional echelons in his ministry persisted in their refusal to cooperate.
In today's vote on approval of the bill by the socioeconomic cabinet, no one voted against, and the bill for implementation of the Sheshinski Committee recommendations passed, despite the absence of Steinitz from the vote and the abstention of Deri and Minister of Religion David Azoulay, both from the Shas Party.
According to the Economic Arrangements bill, the Mining Ordinance and other law applying to natural resources will be amended. Instead of a variable royalty rate on revenue from natural resources production, a flat 5% royalties rate will be charged, and a graduated excess profits tax between 25% and 42% will be imposed on profits in excess of a 14% return on the producers' capital. The Ministry of Finance estimates that this revision is likely to increase state tax revenue by NIS 500 million a year.
Published by Globes [online], Israel business news - www.globes-online.com - on August 4, 2015
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