Finance Minister Moshe Kahlon (Kulanu) opened a meeting with party members on Tuesday by announcing that he intends to lower income tax by 1-2% for Israelis earning up to 13, 000 NIS, as well as for companies. Following a previous income tax reduction in the beginning of the year, an additional 2% reduction would bring it to its lowest point yet.
“As I have promised, the new budget will focus on growth encouragement, ” said Kahlon at the meeting. “This will be done through two steps: investing and lowering taxes.” He went on to say that the Finance Ministry would act to decrease taxes by billions of shekels, defending the decision ahead of any criticism it could bring about. “Last year’s decision to lower the VAT and corporate tax were similarly attacked, but looking back it was the right decision. Taxes belong to the public, and as such they should be returned to the public when there is a surplus.”
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For comparison, last year’s decision to decrease the VAT by 1% translated into an annual 5 billion NIS loss in tax revenues. It should also be noted that during the year’s first quarter, only a 1.3% growth was found.
Kahlon’s decision goes against Bank of Israel Governor Karnit Flug’s expressed recommendation that the Finance Ministry raise taxes so that the government could provide its citizens with better service.
Israel currently ranks among the last countries in the OECD in terms of the tax burden placed upon its citizens, placing 26 out of 34. When considering the large security budget, an additional decrease in taxes would be detrimental to the level of government-provided services.
