The Ministry of Finance and Prime Minister's Office are again on a collision course. Top Ministry of Finance sources today accused senior Prime Minister's Office officials of being behind last week's leaks that VAT and income taxes would be cut in a few weeks.
According to the leaks, the Ministry of Finance is planning to delay or cancel the 1.5% income tax hike that will come into effect on January 1, 2014, because of an ostensible "budget surplus" accumulated in 2013 as a result of non-recurring taxes on acquisitions and on the release of trapped profits. The Ministry of Finance accuses Prime Minister Benjamin Netanyahu of the media reports. Last Thursday, a top Ministry of Finance official said that any remarks about tax cuts at this time were an act of irresponsibility.
The Prime Minister's Office, under director general Harel Locker, has its own charges against Ministry of Finance officials. Top sources at the Prime Minister's Office accuse the Ministry of Finance of "inflating" the budget hole" and the projected deficit for 2013, in order to reduce the fiscal risks and to secure a larger safety coefficient. This came after the deficit targets for 2011-12 were missed by a large margin, even though these were years of robust economic growth.
Officials at the Prime Minister's Office also believe that there is room for a "correction" to some of the austerity measures, such as the VAT and income tax hikes, following the NIS 3.3 billion in tax revenues from the sale of Iscar Ltd. and Waze Ltd. and the NIS 4.3 billion in tax revenues from the release of trapped profits. In addition, the budget deficit for the preceding 12 months has narrowed to NIS 34.3 billion, or 3.3% of GDP, compared with the target of 4.56%.
However, it is important to note that tax cuts or spending increases will have a direct impact on 2014, for which the ambitious deficit target of 3% of GDP has been set. At the same time, Budget Director Amir Levy and State Revenues Director Dr. Michael Sarel are examining budget commitments and projected tax revenues, which should in a few weeks answer the question whether the tax burden can be alleviated, and if so, how (VAT cut, income tax cut, higher spending).
The low growth figures that the Central Bureau of Statistics published on Sunday reinforce the Ministry of Finance's pessimism, as they already know that the revenues projection of NIS 255 billion in 2014 will probably be hard to achieve.
The latest tensions between officials at the Ministry of Finance and Prime Minister's Office began over two weeks ago in the talks on the defense budget. Netanyahu and Minister of Defense Moshe Ya'alon cut a deal to cancel the NIS 3 billion in the defense budget that had been agreed to three months earlier. The decision wiped out the Ministry of Finance's only achievement in the 2013-14 budget.
Officials in Jerusalem agree that Netanyahu and his aides, who decided in Ya'alon's favor, played a dirty trick on Minister of Finance Yair Lapid and his aides, the likes of which had not been seen in years. Officially, the decision to cancel the defense budget cut was jointly made after two meetings between officials from the Ministry of Finances, the Ministry of Defense, and Prime Minister's Office, but the decision had already been taken.
Despite the tensions, top Ministry of Finance and Prime Minister's Office officials met on Sunday to discuss the future of the 2014 budget, including changes in taxes.
The Ministry of Finance said, "The tax surplus is almost entirely due to non-recurring events that could not be forecast. The ministry's projections are based on budget models used worldwide. The ministry is analyzing the up-to-date situation and will present options to the minister."
The Prime Minister's Office said, "The charge is inaccurate."
Published by Globes [online], Israel business news - www.globes-online.com - on November 18, 2013
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