Next israeli budget laden with tax hikes

One of the first things the next Israeli government will have to do is to win Knesset approval for a 2013 budget. Under the law it has 45 days to do that or it will be forced to call yet another round of new elections, according to Haaretz.

The failure to win coalition approval for the 2013 budget was the proximate cause for Prime Minister Benjamin Netanyahu's calling elections for January 22 in the first place, and it will continue to be a political headache for the next prime minister (and finance minister) as well.

The 2013 budget will be a tough one, filled with unpleasant tax hikes and spending cuts. The added costs of the recent war on Gaza are going to make the job more difficult as signs are that economic growth will be slower next year than had been originally forecast.

Last spring, the treasury budget division put together a spending package that called for budget cuts of as much as NIS 15 billion. That will be the basis of the budget that the next government gets as well, but now the defense establishment is likely to ask for an extra NIS 2 billion to cover the recent war, and another NIS 3 billion to NIS 5 billion for what it called "new security risks."

That adds up to painful cuts in other parts of the budget, amounting to as much as NIS 20 billion, a figure unprecedented in Israeli fiscal history.

Rather than cutting, the government could raise taxes. Last summer, the cabinet approved such a move to the tune of NIS 14.4 billion, raising the value-added tax and levies on cigarettes and alcohol. Some of the increases went into effect in September and other will in January.

Now with the war on Gaza and a slower economy, the treasury thinks it will need another NIS 3 billion in tax hikes.

But the situation may even be worse. Current budget assumptions call for NIS 3 billion in revenue from the so-called "captured" corporate income tax and another NIS 2 billion in collections from unreported income.

Most experts doubt that either sum can be raised in such short time. If so, that still leaves another NIS 5 billion fiscal hole.