Knesset Finance Committee approves VAT cut

The Knesset Finance Committee today approved the lowering of VAT from 18% to 17%, following the accumulation of large revenue surpluses in recent months. The estimated loss in revenue from the tax cut is NIS 4.5-4.8 billion.

Opposition Finance Committee members complained about the Ministry of Finance's conduct and the way the VAT reduction order had been brought to the committee for discussion. MKs demanded that approval of the tax cut and discussions of the budget for its second and third Knesset reading be delayed until the Minister of Finance appears before the committee to present the revised budget, following changes in the numbers resulting from revenue surpluses, and the consequences of the VAT cut.

"I support cutting VAT, although I think that many other things could be done with this money, such as increasing child allowances," Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) said. "I don't think it will achieve its purpose of lowering prices."

MK Erel Margalit (Zionist Union) criticized the government, saying, "The entire process of bringing the budget and lowering VAT by the Ministry of Finance is defective. It is improper to bring up a VAT cut two days after Knesset approval of the budget, when the estimated effect of the measure is NIS 4.8 billion. We have a fiscal responsibility, and we cannot approve a measure that will reduce revenue by NIS 5 billion casually and without seeing the overall picture. We demand that the Minister of Finance appear first before the committee and present the revised figure and the consequences of cutting VAT, and that the budget be discussed after that."

Former Deputy Minister of Finance Mickey Levy (Yesh Atid) attacked the measure, saying, "Neither the minister nor his deputy have appeared before the committee. Sending officials, however high-ranking, is not enough. The Minister of Finance is dodging his responsibility to appear before the committee, which is unprecedented. Both the Minister of the Economy and the Knesset Finance Committee chairmen said they were surprised by the VAT cut, so that no serious discussion is taking place."

Ministry of Finance director general Shai Babad, who arrived towards the end of the discussion, said, "We will present the budget soon. The Minister of Finance will come to the Finance Committee with the complete revenue forecast for 2015 and 2016. Where growth is concerned, there is a large collection of measures we will tell the Finance Committee about and ask for its approval. For VAT, the Minister of Finance spoke with the Governor of the Bank of Israel, and heard what she had to say. The Minister of Finance and the Governor of the Bank of Israel have disagreed before, but both he and the professional echelon in the Ministry of Finance believe that this is the right thing to do now."

Published by Globes [online], Israel business news - www.globes-online.com - on September 10, 2015