Finance Minister Yair Lapid presents the government with his ministry’s final budget proposal for 2013-2014, outlining aggressive cuts and a series of new taxes meant to help cover some of the state’s 39 billion shekel ($11 billion) deficit.
Zeev Klein and Israel Hayom Staff
Finance Minister Yair Lapid presented the government with his ministry’s final budget proposal for 2013-2014, outlining aggressive cuts and a series of new taxes meant to help cover some of the state’s 39 billion shekel ($11 billion) deficit.
The bill cuts 25 billion shekels ($7 billion) from government spending in 2013-2014: 7 billion shekels ($2 billion) this year and 18 billion shekels ($5 billion) in 2014.
Some 4 billion shekels ($1 billion) will be cut from defense spending and 2 billion shekels ($560 million) from education and transportation over the two years. Additional cuts, yet to be determined, will be made from the welfare and health budgets.
As part of Lapid’s deal with Histadrut labor federation Chairman Ofer Eini, negotiated to avoid a general strike that could potentially shut the Israeli economy down, a 2 billion shekel cut and wage freeze planned for the public sector will be revised. Finance Ministry and Histadrut officials are still negotiating the final agreement, which Lapid and Eini are expected to sign next week.
One of the biggest bones of contention in the proposed budget bill is the Finance Ministry’s plan for a 3 billion ($841 million) cut in child allowances and day care subsidies. The bill proposes cutting child benefits from 175 shekels ($50) to 140 shekels ($39) per month per child.
Knesset members from all factions are expected to oppose the child allowance cut vigorously. However, the Finance Ministry has already prepared two compromises to help win it a favorable vote: If the proposed child allowance cut meets what ministry sources define as “mere opposition,” the benefit will be cut to 150 shekels ($42) instead of 140 shekels. And if the cut meets fierce opposition that might jeopardize the entire budget bill, the child benefit will be set at 160 shekels ($45) per month.
“Every minister has already declared their ministry a disaster zone, which is fine,” Lapid said on Monday, adding he was ready to “deal with whatever pressure is exerted on me.”
‘Series of new taxes unprecedented’
The budget bill also calls for an unprecedented series of new taxes, which the Finance Ministry believes will yield the state some 20 billion shekels ($562 million) in revenue over the next 18 months.
Value added tax will increase from 17 to 18 percent as early as June, which will automatically drive up public transportation prices, as well as the prices of most goods and services.
Despite raging opposition, the ministry also plans to cancel various value added tax exemptions afforded to the tourism industry, although it has yet to announce its final decision about revoking the VAT exemptions given to the southern resort city of Eilat, whose economy is almost completely dependent on tourism.