Bracing for New Economic Realities in Israel


It is perhaps among the most popular slogans used by hopefuls seeking elected office, “I will not raise taxes” and perhaps, there are some, the naïve, who actually believe it. It was only a few short days ago when Prime Minister Binyamin Netanyahu said “It’s against my DNA” in his reference to questions about planned tax increases. Perhaps one can make the argument that eliminating tax exemptions is not the same as raising taxes.

Nevertheless, it has been learned that Netanyahu’s bureau chief, Harel Locker, has been busy behind the scenes meeting with experts towards formulating the new plan which the prime minister hopes will push the 2013 state budget through. This plan includes widespread cuts that will impact monthly child allowance payments and more, the daily HaMevaser reports.

The announcement on Tuesday 18 Shevat 5773 that Bank of Israel Governor Prof. Stanley Fischer plans to step down in June of this year has sent economic seismic waves through the economy, causing the market to drop and a yellow caution flag has been raised in the nation’s economic sector for the early departure of this key economic figure, one regarded as a leader in the international economic scene, signals instability in Israel.

According to HaMevaser, the planned budget includes major cuts in child allowance and other Bituach Leumi (National Insurance Institute) payments amounting to 3 billion NIS a year for 2013 and 2013. The defense budget is also targeted, with a planned cut of between 5-7 billion NIS in the coming years.

One of the main targets in cutting spending appears to be the public sector, civil servants, who will feel the impact of a 3 billion NIS cut in both 2013 and 2014, cuts that will impact perks and other job amenities.

It appears the prime minister is remaining committed to his “DNA” statement and is trying to cut spending rather than raise taxes. Realizing the need to increase government earnings, certain tax exemptions will be eliminated. Atop of this list is the tax exemption given to educational funds (קרנות השתלמות), which the experts predict will bring an additional 2.4 billion NIS annually in state revenue. This is a ‘perk’ that is prevalent in the public sector.

In what will be a major blow to consumer, the value added tax exemption on fruits and vegetables will be removed, as well the VAT exemption for Eilat. Adding VAT to fruits and vegetables will deliver a major blow to the lower income families, striking the chareidi tzibur hard. Fruits and vegetables have been the staple for many families living on a tight budget, along with basic breads which are VAT free too. Adding VAT to the produce shelves will eliminate the last bastion of relatively inexpensive food items for these families. Yisrael Hayom reports that adding VAT to produce will generate an additional 2 billion NIS annually. The cancelation of the free shopping zone in Eilat will bring the government an additional 600 million NIS annually.

The master plan also includes system reforms, including a law that will prohibit “essential services” from striking, along the lines of the Public Employees Fair Employment Act, more commonly referred to as the Taylor Law. The reform plan also calls for the elimination of the nation’s labor courts.

Responding to the report of the broad sweeping cuts, Histadrut national labor federation leader Ofir Eini announced if the national government dares to target civil servants as reported, he will combat those efforts with sweeping strikes and other actions. Regarding the planned elimination of the labor court system, Eini feels these courts are “an integral arm of the national judicial system in a democratic society” and that such a move would be “anti democratic” for the labor courts are there to serve the national workforce and protect workers’ rights.

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(YWN – Israel Desk, Jerusalem)


  1. Instead of raising taxes, we can cut expenses and simultaneously raise productivity. Let us abolish the draft. This will save Billions of wasted tax Shekels every year and release ten of thousands of workers to earn a living and create new businesses. In the end the IDF will be stronger, the economy will be stronger and the social structure will be stronger.

  2. Aryeh, without dealing with religious/charedi issues pertaining to the IDF, how can Israel have a prepared military with hostile enemies surrounding it without a draft? How could the IAF bomb convoys of missilies on its way to Lebanon, who would head the intelligence of the IDF? Give me the facts on how the IDF will be stronger by abolishing the draft.