New taxes are inevitable, says Steinitz

A day after Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz announced a three percent raise of the government's deficit to prevent dramatic tax hikes, the Finance Ministry disclosed a fiscal plan for 2013 on Wednesday which includes new taxes and ministry budget cuts.

The planned ministry budget cuts will amount to 10 billion shekels ($2.5 billion) and new taxes will add another 10 billion shekels to the government's coffer.

Speaking at an economic conference named after late Teva Pharmaceuticals CEO Eli Hurvitz at a Dead Sea resort on Wednesday, Steinitz said "Unfortunately, new taxes are inevitable. The forecast and mathematics will force us to take action in the sphere of taxes as well. I must say this because our integrity is important to us and it is always a primary tool for the government, especially during a crisis."

Dashing hopes of no further increases in existing taxes, the Finance Ministry announced there will be a 1% increase of value added tax to 17% in 2013. The move is expected to generate 4 billion shekels ($1 billion) more for the government annually.

The income tax, mainly for those in the middle income bracket, will be raised by 1% as well, which will yield 3 billion shekels ($760 million) annually.

A "wealth tax" will be imposed on people who earn more than 1 million shekels ($253,000) per year, which will amount to 400 million shekels ($101 million) annually.

According to the plan, the Finance Ministry will charge Tax Authority Director-General Doron Arbeli with conducting an all-out war against the black market and tax evaders, which ministry officials say cause the government to lose 200 billion shekels ($50.5 billion) each year.

The ministry is also planning to generate an additional 2 billion to 5 billion shekels ($500 million to $1.3 billion) through a "hostage profits" tax to be imposed on large Israeli and foreign companies.

Some taxes the ministry planned have been cancelled, including a tax on "Kranot Hishtalmut" (short term employee savings plans) and an increase in the VAT for fruits and vegetables. In Eilat, people will still be exempt from the VAT and country-wide corporate taxes will not be raised.

Total cuts in the government's budget planned by the ministry for 2013 come to 10 billion shekels ($2.5 billion). Managers and other public servants who earn more than 20,000 shekels ($5,080) per month, will be forced to take salary cuts. The cuts will affect employees in government-owned companies, medical centers, health care systems, corporations, Bank of Israel, National Insurance Institute, caretaker organizations, Defense Ministry, defense industries and the Israel Defense Forces.

To symbolically lighten the blow of the expected harsh financial measures in 2013, the president, prime minister, other ministers, MKs and Supreme Court judges will agree to a voluntary cut in their salaries.

National Insurance Institute funds are also slated for cuts, including funds for the elderly, disabled and Holocaust survivors.

In contrast with what has been reported recently, the Defense Ministry budget for 2013 will be cut by 2 billion to 3 billion shekels ($500 million to $760 million), although a fierce struggle between Steinitz and Defense Minister Ehud Barak is expected over the final amount, which may require Netanyahu's intervention.

Some good news has come from the Trajtenberg Committee, set up by the government last summer to address the wave of socio-economic protests. The committee's conclusions concerning the country's educational system, with special emphasis on free pre-school education, will be implemented in full. Tax breaks and additional tax exemption points for fathers of children up to the age of three and mothers with children between the ages of 3 and 5 will be upheld.

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