Ministers in Israel’s cabinet were on Monday preparing to vote on a package of sweeping economic austerity measures in a bid to cut the budget deficit, in a move expected to hit the underprivileged hard.
Central to the plan is a hike in income tax and VAT, as well as a 700 million shekel ($171 million, 140 million euro) cut to the 2012 state budget.
The package, details of which were finalized over the last few weeks by Israeli Prime Minister Benjamin Netanyahu, Finance Minister Yuval Steinitz and Bank of Israel Governor Stanley Fischer, is reportedly expected to pass by a large majority.
The aim is to try and plug a 28 billion shekel ($6.9 billion/5.6 billion euro) hole in the budget, which is close to 4.0 percent of Israel’s GDP – twice that which was expected for 2012.
Among the measures set to be voted through is a 1.0 percent increase in income tax for anyone who earns more than a gross monthly salary of 8,870 shekels ($2,200/1,800 euros). For those earning more than 67,000 shekels ($16,600/13,500 euros) per month, there will be a 2.0 percent surtax.
There will also be a 1.0 percent rise in VAT, from 16 to 17 percent, which will take effect on Wednesday.
Officials say the measures would raise the annual tax burden on Israeli households by 1,740 shekels ($426/347 euros).
And there will be immediate across-the-board budget cut of 700 million shekels – which will see spending cut by 5.0 percent across all government ministries, with the exception of defense, education, welfare and immigrant absorption.
A further 3.0 percent cut is to be implemented in January.
The austerity measures are expected to save more than 14 billion shekels, with another 14 billion shekels will be raised from the decision earlier this month to raise the 2013 budget deficit target to 3.0 percent of GDP.
In a first step, the government last week hiked taxes on beer and tobacco in a move expected to bring 1.04 billion shekels into the treasury coffers.
“It is not impossible but it is not easy,” Netanyahu said at the start of the cabinet meeting.
“I am asking ministers to show responsibility and determination to protect the Israeli economy. We shall take more from those who have more, and less from those who have less,” he said.
[image via Agence France-Presse]