Uncertainties cloud Kahlon's family aid program

Moshe Kahlon photo: Tamar Matsafi
Moshe Kahlon photo: Tamar Matsafi

There are conflicting tax collection forecasts within the Ministry of Finance, as well as constraints on the spending side.

Internal differences within the Ministry of Finance on estimates of revenue from tax collection in the next two years cast a cloud of uncertainty over Minister of Finance Moshe Kahlon's "net family" program of extra government spending.

Senior Ministry of Finance officials say that surplus tax collection of NIS 3 billion is expected in 2017, and NIS 3.5 billion in 2018. These surpluses are in comparison with the tax revenue forecasts prepared by Ministry of Finance chief economist Yoel Naveh and attached to the budget documents approved by the government on August 11, 2016. Ministry of Finance director general Shai Babad repeated these numbers last Friday in an appearance on Channel 2 television. Ministry of Finance officials say that the source of the numbers is an updated revenue forecast prepared by Naveh just before the Passover holiday. This forecast has not been published.

Inquiries by "Globes" reveal, however, that the State Revenue Administration in the Ministry of Finance predicts a surplus of just NIS 1.5-1.7 billion in tax revenues for 2017, which is similar to the amount that has accumulated so far this year (NIS 1.6 billion). In addition, the Israel Tax Authority sees a one-time surplus of about NIS 1 billion as a result of the new legislation on personal service companies used by professionals to receive their salaries and reduce their tax liabilities. According to these figures, the total surplus for 2017 will be NIS 2.5 billion, rather than the NIS 3 billion quoted by senior Ministry of Finance officials.

As for 2018, the State Revenue Administration expects a surplus of just NIS 2.3 billion, compared with NIS 3.5 billion quoted by Ministry of Finance officials. Naveh refuses to take into account the one-time tax revenue expected from the Mobileye deal, amounting to some NIS 4 million, on the grounds that completion of the deal whereby Mobileye is to be acquired by Intel is still conditional on the consent of Mobileye's shareholders and on regulatory approvals.

Even if the sums in question are small in relation to the state budget as a whole (NIS 300 billion), the gaps are indicative of uncertainty in the Ministry of Finance over the possibility of implementing Kahlon's "net family" program, especially when Kahlon has already announced his intention of allocating further substantial sums for raising disability allowances, to the tune of NIS 4 billion annually on full implementation. The "numerator law" passed last year forbids the government to approve budgetary expenditure that does not have a budget source for three years ahead.

Kahlon's big problem is not on the revenue side, but actually on the expenditure side, where he is limited in his ability to raise state spending beyond the ceiling set in the budget: NIS 359.7 billion in 2017 and NIS 376.7 billion in 2018. The Ministry of Finance has a reserve of NIS 3.5 billion for 2018, but only NIS 1.25 billion is for multi-year spending. The rest can only be spent in 2018.

Assuming Kahlon allocates up to NIS 800 million in 2018 for financing the first stage of the rise in disability allowances, he will have less than NIS 500 million for expanding employment grants (negative income tax). He has already decided to finance the subsidy for afternoon child-care in schools from the one-time expenditure amount, which means that the subsidy will end in 2019 unless new sources of finance are found.

The spending ceiling has been raised many times in the past before approval of the budget, but once the bill has gone through the government, the ceiling has not been broken. Under the current two-year budget there is an "exit point" in November when the spending ceiling (and the deficit target) and be changed for 2018.

Published by Globes [online], Israel business news - www.globes-online.com - on April 25, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Moshe Kahlon photo: Tamar Matsafi
Moshe Kahlon photo: Tamar Matsafi
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