Minister of Finance Yair Lapid submitted his austerity budget for 2013-14 on Monday, calling for 18 billion shekels in cuts and 5 billion in tax increases to begin closing a 30 billion shekel deficit.
The budget proposes a one percentage point hike in VAT (to 18%), income tax rates, the purchase tax and the companies tax. In addition, it cancels exemptions on VAT on fruits and vegetables, the exemption on advanced training funds and on provident funds.
Extensive cuts in child allowances, which will impact large families and drive thousands of more children below the poverty line, had already been announced.
During an acrimonious Knesset session, Lapid defended his budget against critics from the Labor party and chareidi MKs. It was the first time since the elections that he has shed his usual cool demeanor in a face-to-face confrontation with an aroused opposition in the plenum.
Opposition leader Shelly Yacimovich said that the budget would place a heavy burden on Israelis and vowed that the Labor party would be able to “meaningfully influence the management of the government” and fight the proposed budget cuts at the head of the opposition.
She added that Lapid’s proposals were identical to those proposed by Prime Minister Binyamin Netanyahu.
MK Rabbi Meir Porush, of United Torah Judaism, slammed the government’s policy and Lapid in his Knesset speech: “I heard he’s going to hit Israel with unbearable economic measures.
“This is a government which is built on hate alone. The highest of this government’s achievements is exclusion of the chareidim.”
Lapid, who spoke shortly afterwards, struck back at a comment made by Rabbi Porush about a drop in army enlistments, saying:
“You are worried? I want to tell you, sir — don’t worry yourself. This government will take care of that. There’ll be plenty of new recruits right out of your backyard,” referring to plans to draft yeshivah students.
Lapid also insulted Rabbi Moshe Gafni (UTJ), who had spoken out from his seat during Lapid’s remarks, saying, “You have such big lungs to shout, coming from such a small body…”
Lapid continued: “We’re tired of taking your orders. Israel doesn’t belong to you.”
Later in the session, when Rabbi Gafni had a chance to speak, he addressed Lapid’s condescending tirade.
“We won’t conduct any further argument with you, talk to the wall,” Rabbi Gafni said. “It’s intolerable that a chareidi MK [Rabbi Porush] gets up in the plenum to speak about an economic problem, and instead of responding to the point being made, the Finance Minister instead responds to the speaker [and his being chareidi].”
“The Finance Minister’s whole façade of niceness that he put on until today is over,” Rabbi Gafni added. “Because of all the attacks on him in the media, because he’s been asked about economic matters and he has no answers, all he is left with is to attack the chareidim.”
Indeed, according to Channel 2’s political reporter, Lapid had not originally been scheduled to speak, but had requested time at the podium. The reporter suggested that he did so in order to provoke angry exchanges with chareidi MKs as a means of diverting attention from the harshness of the budget on the general Israeli public, giving the impression that the chareidim would bear the brunt of it.
Lapid also responded to those, including Bank of Israel chairman Stanley Fischer, who have chided him for forgetting the plight of the poor.
“Empathy cannot replace policy. We need a strong middle class of working people who pay taxes, and we can use these taxes to help those who lack. No child will go hungry in Israel so long as we are here,” Lapid declared.
“This is a budget of hope. It’s true that there will be spending cuts and tax hikes, but they will be of short duration. There has been a breakdown which we must fix. This will be brief. It will come, it will hurt and it will pass. Within two years, Israel will feel the change — in housing, equal sharing of the burden, in the cost of living, and in the feeling that people are living in a just country which takes care of its money, and does not merely hand it over to sectors and people who are close to the trough,” Lapid said, in a typical swipe at the chareidim.
The budget proposal sets the deficit target for 2014 at 3-3.25% of GDP, representing a compromise between Fischer’s recommendation for a 3% target and Lapid’s wish to raise the target to 3.5%, Globes said.
On the basis of 2012 figures, the Ministry of Finance estimates that the VAT hike will raise NIS 4 billion per year, the income tax hike will raise NIS 3 billion, the purchase tax hike will raise NIS 1 billion, and the companies tax hike will raise NIS 700 million.
VAT exemptions on fruits and vegetables are projected to bring in NIS 2.2 billion, the exemption on advanced training funds and on provident funds, NIS 2.4 billion and NIS 2 billion, respectively, betterment tax breaks should raise NIS 200 million, and the VAT exemption in Eilat would raise NIS 600 million.