The Knesset passed the austerity measures on Monday night in the second and third readings by 28 votes to 16. Earlier in the day, the Knesset plenum passed the measures in the first reading by 40:27, out of 120 MKs and the measures were subsquently passed by the Knesset Finance Committee.
"In defense as in economics, we have no one to rely on but ourselves and our Father in Heaven, who will give us the wisdom to act properly in these times," said Minister of Finance Yuval Steinitz.
Under the proposal, to reduce the blowout in the 2012 budget, which exceeds the target, and to meet the 2013 deficit cap, a series of tax hikes will be carried out. Beginning in the 2013 tax year, the marginal income tax on the top three tax brackets of NIS 106,561-501,960 a year will be raised by one percentage point. A 2% surtax will be levied on individual incomes of over NIS 800,000. Linkage to the Consumer Price Index (CPI) will apply only on the three lowest salary brackets. The directive for higher purchase taxes on real estate that is not an only home will be extended. Employers' insurance payments will be raised on the proportion of salaries over 60% of the average national salary.
This morning, Prime Minister Benjamin Netanyahu and Steinitz agreed with Knesset Labor, Welfare and Health Committee chairman MK Haim Katz (Likud) to cancel the 1% tax hike on salaries of NIS 8,881-14,000 a month. They also lowered the fourth and fifth tax brackets' thresholds, effectively increasing the tax burden on the middle class. VAT will be raised from 16% to 17% from September.
Labor Party chairwoman MK Shelly Yachimovich praised Katz and Finance Committee chairman MK Moshe Gafni (United Torah Judaism), saying, "They forced the Ministry of Finance to apply the income tax hikes only on salaries higher than NIS 14,000." She added, however, "This change does not alter the distorting and infuriating fact that people earning more than NIS 42,000 will not pay even one shekel more… When the middle class will pay here and now through the VAT hike and the income tax hike, not a hair on the heads of huge income-earners will be touched, and they will continue to eat the free meals distributed by Netanyahu."
Published by Globes [online], Israel business news - www.globes-online.com - on August 6, 2012
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