Finance Minister Blocks VAT Cut Proposal by Housing Minister Ahead of Elections

Housing and Construction Minister Yitzhak Goldknopf's attempt to reduce the VAT rate to 17% has been postponed by two weeks due to opposition from Finance Minister Bezalel Smotrich. The proposal, introduced just months before the upcoming elections, aims to ease the cost of living but faces strong resistance from the Finance Ministry and tax authorities. They warn that lowering VAT, recently raised to 18% to fund war expenses, would cost the state budget approximately 8.5 billion shekels annually. This significant deficit could force the government to implement painful across-the-board cuts or increase the fiscal deficit.

Senior officials in the Finance Ministry criticized Goldknopf's initiative as disconnected from Israel's budgetary realities, emphasizing that such tax cuts are unlikely to be adopted by the government. They also pointed out the contradiction in Goldknopf's stance, noting that he supported the VAT increase in January 2024 and recently led protests against the arrest of yeshiva students avoiding military service. With Smotrich's opposition, coalition partners now have an additional two weeks to negotiate a compromise or potentially shelve the VAT reduction proposal permanently.