A week ago we were living as if in a dream. The Income Tax Commissioner had published the table for stage two of the tax reforms, and enthusiastically, we sat down and calculated how much more money we would have in our pockets. But before we had time to decide on what to spend the extra money, lo and behold, Finance Minister Benjamin Netanyahu announces that the income tax rate actually will be going up after all.
The saga began back in March, with Netanyahu's first economic package, which fixed the income tax brackets and tax points for at least a year. Inflation was expected to reach around 2-3 percent, so if the brackets were not upgraded, the tax authorities would end up collecting more and we would end up with less.
But, heavens above, inflation was negative for 2003, dropping 2 percent, and there was no erosion of wages at all. Just over a week ago, the Income Tax Authority decided, nevertheless, not to readjust the tax brackets downward, as the law only refers to "up" grading. Netanyahu concurred, but then changed his mind Wednesday, and announced that the tax brackets are changing, downward, as well as canceling a tax point for any individual with a non-working partner. This means that the tax burden is increasing by NIS 750 million, and people earning the lowest incomes, those who are more sensitive to such changes, will be the hit the hardest.
This is a blatant indictment of the Knesset's ineptitude in passing the 2004 budget, and of Netanyahu and his budgets director Uri Yogev. Because after the party hacks and hangers-on were paid off (using all NIS 1.35 billion of reserves), the Knesset Finance Committee managed to scrub out clauses from the Economic Arrangements Bill which would have increased government revenues. Hence the NIS 750 million hole in the budget, which the minster decided to fill by raising income taxes. Now how does that sit with his declared policies of cutting taxes on labor in order to encourage employment and growth?
After a negative adjustment in tax brackets, the reforms seem a lot less effective. But that's not all, because starting this month, pension contributions go up. Every member of a pension fund, old and new (some half a million people) will have to stump up an additional one-third of a percent of their salary. This will cut take-home pay so that it will feel as if the tax reforms never even happened.
Of course, all of this does not stop Netanyahu throwing out promises to cut taxes for the lowest earners, referring to plans by incoming accountant-general Yaron Zelekha that will put an extra NIS 100-200 in the pockets of those earning NIS 3,000-8,000 a month. But we haven't forgotten that also he promised not to raise taxes, but when he needed NIS 700 million for the separation fence, he slapped extra duty on fuel that pushed up expenses for manufacturing, again hurting employment and growth.
So we have a small favor to ask of Netanyahu. Don't promise to cut taxes. Forget it. Take pity on us, but don't make promises - because when the smoke around the reduction has cleared away, all we see are higher taxes.
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