On Friday, the government unanimously approved the state budget for 2017-2018 and the accompanying Economic Arrangements Bill, after a 20-hour meeting. The Ministry of Finance succeeded in passing most of the measures it proposed, but had to relinquish the plan to impose taxation on private and complementary health insurance, which had been intended to finance NIS 200 million of the expansion of the basket of drugs provided by the state through the health funds. Instead, in order to finance this and other budgets, the Ministry of Finance had to raise the across-the-board cut in ministerial spending to NIS 4.5 billion a year instead of the originally planned NIS 2 billion.
The reforms included in the Economic Arrangements Bill fall under three headings: reducing the cost of living; narrowing social gaps; and encouraging economic growth.
Among the reforms under the first heading are changes at the Standards Institution of Israel to facilitate the adoption of internationally recognized standards, thus making imports of goods easier, in an attempt to reduce the dominance of a small number of Israeli manufacturers and importers.
In telecommunications, reforms are proposed that will boost competition in multi-channel television and broadband infrastructure. Greater competition is also planned in the supply of domestic gas.
In transport, ordering of joint taxi journeys will be permitted. The Ministry of Finance also proposes the start of two additional light rail lines in Tel Aviv next year, a new light rail line in Jerusalem, extension of the Metronit in Haifa, a light rail line from Haifa to Nazareth, and a railway line alongside Road 6 as an alternative to the coastal line.
Relaxations are planned in the credit market, such as reducing the initial capital required to set up a credit association from NIS 75 million to just NIS 3 million.
Under the heading of narrowing social gaps, the Ministry of Finance proposes an additional NIS 500 million from the state budget for the basket of drugs provided in the public health system, higher income supplements for the old, funds for school principals to aid pupils suffering economic hardship, unemployment benefits for the self-employed, taxation of severance pay for high earners, and an annual tax on those owning three or more homes, with the aim both of raising extra revenue and lowering demand in the housing market. Income tax brackets will be widened with the aim of benefitting people on average wages, and taxation of kibbutz members will be brought in line with taxation of the population in general.
To encourage growth and productivity, the Ministry of Finance proposes reducing companies tax from 25% to 24% in 2017 and 23% in 2018. There will be tax benefits for companies developing and registering intellectual property in Israel. Global technology companies with annual revenue above NIS 10 billion will benefit from a companies tax rate of 6% on revenue attributable to the intellectual property. Smaller companies will be taxed at 12%. Tax on dividends paid to the parent company (as opposed to individual shareholders) that derive from the intellectual property will fall to 4%. There will also be changes in the tax regime to benefit other, non R&D, international companies investing in Israel.
Incentives will be provided for switching to natural gas in industry and transport. Regulations governing setting up businesses will also be relaxed.
In response to the proposed changes in the Standards Institution of Israel, the Institution said, "Introducing the reform in the Standards Institution into the Economic Arrangements Bill represents a gamble by the government with the health of the public for the sake of a populistic reform which all those familiar with the details know will not reduce the cost of living."
Published by Globes [online], Israel business news - www.globes-online.com - on August 14, 2016
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