Israel Approves Austerity Package

July 31, 2012 Taxation in Israel

Tax increases in IsraelJERUSALEM – Israel has approved several tax changes with the aim of quickly addressing the country’s ailing economic situation and avoiding a financial crisis as seen in several countries in Europe.

On July 30th the Cabinet of Israel approved a new austerity package consisting of several increases to tax rates and extensive spending cuts aimed at increasing tax revenues and reducing the government deficit to below 4 percent of GDP.

From the start of 2013 all taxpayers earning above the average salary of ILS 8 881 per month will see their income tax rate rise by 1 percent. Individuals who are in the highest tax bracket and are earning in excess of ILS 67 000 per month will see their tax rate rise by 2 percent. On August 1st the rate of the value added tax will rise by 1 percent from the current level of 16 percent. In an attempt to reduce unnecessary spending and boost efficiency, the funds allocated to government ministries will be slashed by 5 percent. The government expects that cumulatively the newly approved measures will result in government revenues rising by ILS 14.4 billion in 2013.

The government has also agreed to pursue new means of fighting tax evasion, and will begin discussing next week what new measures should be instated to help protect the revenue base from tax cheats. Tax experts in Israel believe that the government will grant tax authorities extra powers to investigate tax evaders, including the right obtain access to bank account information.

Commenting on the new austerity package, the Prime Minister of Israel Binyamin Netanyahu said that the new measures are tough but necessary. He emphasized the importance of addressing the country’s economic situation as soon as possible, pointing to the financial situation in Europe and saying “….governments who didn’t act in time, decisively and responsibly, caused great damage to their citizens. I will not allow that to happen [in Israel].”

Photo by RonAlmog