Bethel Finances: Netanyahu to seek cabinet nod for halt to tax cuts

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On Sunday, Prime Minister Benjamin Netanyahu will try to obtain cabinet approval for the Trajtenberg committee's tax recommendations. This is the most report's most "revolutionary" chapter as far as Netanyahu is concerned, as it includes measures that contradict his economic principles, such as ending the reductions in income and company tax rates.

"We are not opposed to continuing the tax cuts. It is simply that Israel cannot, socially, bear them," Yoram Gabbai, the brain behind the committee's tax recommendations, told "Globes". Gabbai, a former income tax commissioner, said, "I would be happy to abolish the tax break for companies in central Israel (the Law for the Encouragement of Capital Investments - A.F.), but I didn’t vote against, because in principle, the committee should not cause shocks to the business sector. It's enough that we increased employers' National Insurance contributions (from 5.9% to 7.5%) and the company tax."

The cabinet will also vote on a recommendation to raise the top marginal tax rate on people earning more than NIS 40,231 a month from 45% to 48%. The committee also recommends lowering the cap on National Insurance levies to five times the average national salary (about NIS 40,000).

An analysis by "Globes" found that this is a problematic proposal, because the beneficiaries will be people earning NIS 40,000-134,000 a month. The measure is supposed to end the practice of "wallet companies" - fictitious companies set up by high salary earners to evade high taxes.

The cabinet will vote on the recommendation to award two tax credits to fathers for each child under the age of 3.

The most radical measure that the cabinet will try to promote, and which has infuriated manufacturers, is the abolishing of all customs duties within two years. For the first time, Gabbai disclosed how the recommendation came about, saying, "There were two positions: the more radical and more efficient one for competition in tradable goods is only to open up to competition. All the rest is chasing our tails. My position was simple: zero custom duties, including duty on cars, and the abolition of all purchase taxes. The tax code should vanish."

The cabinet will discuss raising the capital gains tax from 15% to 20%, and to 25% for parties at interest, as well as a 2% surtax on people making more than NIS 1 million from labor and capital gains.

Trajtenberg committee tax recommendations

• Raise the marginal tax rate on monthly income of over NIS 40,000 to 48%: will generate NIS 700 million a year.
• Raise company tax from 24% to 25%: will generate NIS 1.4 billion a year.
• Raise capital gains tax to 25%, and to 30% for controlling shareholders: will raise NIS 1.3 billion a year.
• Cap the National Insurance levy and health tax to five times the average national salary: will cost NIS 800 million in lost revenue in 2012.
• A 2% surtax on people earning more than NIS 1 million a year: will generate NIS 400 million a year.
• Two tax credit points to fathers with children under the age of 3: will increase take-home pay by NIS 420, and cost NIS 1 billion in lost revenues.
• Reduce the excise on gasoline by NIS 0.40 per liter and on diesel by NIS 0.20 per liter: NIS 2.5 billion in lost tax revenues a year. Gradual reduction of purchase taxes and customs duties: NIS 1.5 billion in lost tax revenues a year.