Israel's Treasury Proposes Tax Hikes and Benefit Cuts in Budget Plan
Israel's Ministry of Finance is drafting a two-year budget for 2027-2028, proposing measures like immediate VAT payments, taxing rental income, and reducing parent tax credits. The plan aims to fund defense spending and the deficit by potentially increasing taxes and cutting benefits. Many proposals face political hurdles and depend on the next government's composition. The urgency to pass a budget is high due to significant defense expenditures.
הידיעה ב-6 שורות · תקציר של baba
- Israel's Finance Ministry is developing a two-year budget for 2027-2028 amid political uncertainty.
- Proposed measures include immediate VAT payments and taxing rental income, potentially raising NIS 1 billion annually.
- Tax credit points for working parents may be reduced to fund income tax cuts for higher earners.
- Reinstating a property tax on vacant land and reducing study fund tax benefits are also being considered.
- The success of these proposals hinges on the political will of the next government coalition.
- High defense spending makes passing a new budget a pressing national need.
Despite political uncertainty and the absence of a government, Israel's Ministry of Finance is developing a two-year state budget for 2027-2028. The plan aims to address significant defense expenditures, a large deficit, and potential reductions in U.S. security aid by identifying substantial revenue sources. A "Committee of Three," comprising the Budget Commissioner, Chief Economist, and Tax Authority Director, is spearheading the effort, with eight teams examining tax system changes, the cancellation of exemptions, and benefits for employees and businesses.
Several proposals are under consideration, including a shift to immediate VAT payments through an online system, which proponents claim would simplify reporting and combat tax evasion. Another significant proposal involves eliminating the tax exemption on rental income up to approximately NIS 5,600 per month, a move estimated to generate NIS 1 billion annually. The ministry is also exploring the cancellation of VAT exemptions on fruits and vegetables, though this could raise consumer prices. However, a proposed tax on outbound flights is considered unlikely to pass.
Further proposals include reducing tax credit points for working parents, which currently cost the state about NIS 14.5 billion annually, to fund income tax reductions for those earning NIS 25,000 to NIS 53,000 monthly. The ministry is also considering reinstating a property tax on vacant land, a measure previously abolished in 2000, to encourage construction and generate revenue. Additionally, the Finance Ministry is examining reductions in tax benefits for both new and existing savings in study funds, a move expected to face strong opposition from labor unions.
Officials acknowledge that the feasibility of these proposals depends heavily on the composition of the next government and the willingness of politicians to approve potentially unpopular measures. The urgency to pass a new budget is underscored by the ongoing high defense spending, with each month without a budget deepening the fiscal deficit. The Ministry of Finance is preparing multiple plans to adapt to different political scenarios, anticipating a race to pass a biennial budget once a new government is formed.
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