Israel’s 2015-16 state budget bill passed its first Knesset reading Sept. 2, following a marathon session that ended with 57 MKs voting in favor and 53 MKs voting against it.
At 424.8 billion shekels ($108.2 billion), the two-year plan is the largest budget in Israel’s history. It includes NIS 103 billion ($26 billion) to cover government debts, NIS 56 billion ($14 billion) for defense spending, NIS 48 billion ($12 billion) for education, and NIS 29 billion ($7 billion) for health care.
The Knesset’s Economics Committee will prepare the bill for its second and third Knesset readings, scheduled for the coming weeks.
The Sept. 2 vote was held as part of a special session called during the Knesset’s summer recess, as Israel has been functioning without a state budget throughout this year because elections were called and the last Knesset was dissolved in December 2014. The elections stopped the 2015 budget discussions in their tracks, and they resumed only in early April, after the current Knesset was sworn in. Throughout this year, government ministries have had to manage with month-to-month budgets.
Under Israeli law, once a coalition is formed, the finance minister needs to present the budget bill within three months, but Finance Minister Moshe Kahlon was granted an extension when the government decided to pursue a biennial budget.
“The Israeli public deserves a change,” Kahlon said Wednesday. “How many years has it been since we’ve seen a budget that imposes nothing, and expands on education, health, and welfare? My vision includes reducing social gap using more than infrastructure—we’ll narrow these gaps by investing in equal opportunities.”
Kahlon urged MKs to resist external pressures by what he called “interested parties seeking to undermine the reforms.” The budget, he said, was “a starting point for more significant changes.”
“Ask yourselves, ‘Will my vote serve many or a few? Am I helping those who need it, or undermining those already struggling?’ We need to give more to the elderly, to soldiers, and to children, and let me tell you, we won’t stop there. We can’t do everything in three months and with one budget, but it’s important we start somewhere,” said Kahlon.
“Ask yourselves, ‘Will my vote serve many or a few? Am I helping those who need it, or undermining those already struggling?’ We need to give more to the elderly, to soldiers, and to children, and let me tell you, we won’t stop there. We can’t do everything in three months and with one budget, but it’s important we start somewhere,” said Kahlon.
Meanwhile, Prime Minister Benjamin Netanyahu and Kahlon on Thursday announced in a joint press conference that they plan to cut Israel’s value-added tax (VAT) and corporate tax rates following a recent tax surplus.
“In order to encourage growth I have decided, together with Minister of Finance Moshe Kahlon, to reduce taxes, to cut VAT to 17 percent and the Corporate Tax to 25 percent,” Netanyahu said, adding that he believes the move will help contribute to economic growth.
Kahlon said the decision to cut the taxes stemmed from surplus tax receipts that amount to billions of shekels, “which we intend to return to Israel’s citizens.”
“If there are further surpluses, we intend to continue the trend of tax reductions,” added Kahlon.
According to Globes, Israel’s state tax revenues were $636 million higher than forecast in August, with a cumulative surplus of $2.5 billion.
Shraga Brosh, president of the Manufacturers Association of Israel, said lowering the taxes “sends a very positive message to the business sector, and to domestic and foreign investors.”
Senior economists, however, warned that the increase in state revenues was limited and is not a prolonged trend, and that lowering the VAT rate now could cost the state up to $1.3 billion and result in an increase in the state deficit. This, the economists said, may jeopardize Israel’s international credit rating, which is currently set at “A.”
—With reporting by Zeev Klein, Hezi Sternlicht, and Yehuda Shlezinger