Israel’s Finance Ministry is preparing a multi-year economic plan that includes major reforms in pension contributions, exemption taxes, retirement age and the defense budget, among other sectors, aimed at reducing the state budget deficit, Ynet reported on Wednesday.
With elections on the horizon in October, the plan does not include a state budget for 2027 since a new government may not accept it.
Therefore, Israeli Finance Minister Bezalel Smotrich instructed senior staff members within the ministry to draft a long-term plan that could serve the next government as broad guidelines, according to Ynet.
According to the report, pension contributions by employers and employees are slated for reduction by the plan; the 18% consumption tax (VAT) exemption from 1976 on fruit and vegetables would be canceled, including the VAT exemption in Eilat, in two stages; retirement age would gradually increase to 70, potentially canceling the mandatory retirement age altogether; the defense budget would be lowered to the prewar baseline of 85 billion shekels (~$29 billion); state investment in infrastructure, education, welfare and healthcare; the abolition of coalition funds and reducing the number of ministers, merging or closing at least 10 ministries; and a mileage tax would be introduced to deal with worsening traffic congestion.
A senior Finance Ministry official was quoted as saying, “Work on the multi-year plan began in recent days and is now in its early stages. Among other things, we are conducting an in-depth review of pension and provident fund contributions, along with important wage-related initiatives. The goal in these areas is not to enrich the state treasury, but to increase citizens’ disposable income and improve their welfare, while distributing the tax burden in a more balanced and appropriate way.”
Today’s pension contributions can reach 30% of an Israeli worker’s salary.
Treasury officials argued in the report that this structure places too much burden on the daily financial requirements of families, while most retirees have sufficient savings to support themselves during retirement.
Tax credit points that currently apply to new immigrants and to more than 400 communities in peripheral areas in the country are to be reduced or canceled as well under the plan, Ynet added.
