Israeli Parties Set Out Tax Cut Plans

by Lorys Charalambous, Tax-News.com, Cyprus

04 February 2009

Speaking at a recent press conference Chairman of Likud political party Benjamin Netanyahu presented his economic manifesto. Likud, if elected would cut the top rate of income tax to 35%.

To tackle the global financial crisis, which the Bank of Israel believes will lead the Israeli economy to contract in 2009, the Likud party, which leads opinion polls by a small margin, believes that tax cuts are needed to offset its effects.

Netanyahu’s policies were attacked by the Kadima party. Chairman of Kadima Makov stressed that because of Israel’s fiscal deficit, which he cited would reach 5% of GDP in 2009, there was no room for brash fiscal reform and instead has adopted a laissez-faire approach to the recession stating “we can’t moderate the recession. We have to confront it with our eyes open, and because of the expected deficit the weapons for fighting it are limited.”

Kadima has proposed measures to reduce the burden on low- to middle-income households and enterprises, announcing that if the party were to gain power in the forthcoming elections it would significantly reduce government expenditure to 41% of GDP and reduce the VAT rate, noting “VAT is a regressive tax that mainly hurts the poorer people who spend all their money on consumables.” Kadima said it would reduce corporation tax to 20% with immediate effect, whilst the top rate of income tax would be gradually reduced to 42%. But the party has insisted income tax could not be cut until the Israeli economy became more stable.

Kadima has announced that it would focus government investment into strengthening the Israeli economy's competitiveness, ultimately increasing employment nationwide, adding that that it would, in collaboration with venture capital funds, seek to launch a ILS200m (USD49m) fund to aid start up companies.

The Bank of Israel in its forecast last week predicted negative GDP growth of 0.2% for 2009, estimating positive growth in late-2009 and projected GDP growth of 2% in 2010.

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