Kahlon to consult top accountants on expected NIS 20 billion tax surplus
‘Minister planning breaks for small businesses’
Finance Minister Moshe Kahlon will summon the heads of the country’s leading accounting firms and the Israel Institute of Certified Public Accountants to a roundtable meeting in order to hear their proposals for taxation measures that will both encourage growth and narrow social gaps.
The firms involved are EY Israel, headed by Ronen Barel; KPMG Somekh Chaikin, headed by Gad Somekh; Deloitte Brightman Almagor Zohar, headed by Ilan Birnfeld; PriceWaterhouseCoopers Israel – Kesselman & Kesselman, headed by Joseph Fellus; and BDO Ziv Haft, headed by Danny Margalit.
“The idea is to hear the professional opinion of people dealing with business taxation,” sources associated with Kahlon said on Thursday. “There are no plans to cut taxes for Israel Chemicals or Teva, but there is definitely a wish to make things easier for small and medium-sized businesses, provided that measures will both increase growth and narrow gaps.”
The same sources said that although the minister of finance had already declared his intention of cutting taxes and lowering the marginal income tax rate for people with incomes of NIS 11,000 or more per month, no final decision had been taken. Kahlon has up until now postponed the Finance Ministry’s professional discussion on tax policy, but the professionals in the ministry are scheduled to present their recommendations in the coming days.
Kahlon plans to consult additional parties, including the Bank of Israel and the National Economic Council. The question of which taxation measures are needed has already led to a sharp public dispute between Kahlon and the heads of the Bank of Israel and Finance Ministry economists. Kahlon revealed on Wednesday that this year’s tax revenue surplus is likely to reach NIS 20 billion, and made it clear that he believes that this money “belongs to the people, not the minister of finance or the government.”
The tax revenue surplus is the result of a lowering the tax rate on dividends to owners of substantial holdings in private companies (NIS 13b.), taxes on the sale of shares in Mobileye to Intel (NIS 4.1b.), taxes on the Keter Plastic deal (NIS 1.2b.) and on the sale of rights in the Tamar natural gas reservoir by Delek Drilling Limited Partnership (NIS 500 million). Economists are asserting that there should be no additional tax cuts, because the revenue surpluses accumulated in the Treasury are a one-time event, and are not due to sustainable economic growth.
According to these economists, cutting taxes now will not increase economic growth, because the economy is already at full employment, and the rate of participation in the labor force has not risen for two years.
When Rino Zror asked Kahlon on Wednesday on an Army Radio program whether he believed that the Bank of Israel’s attitude was wrong, he answered, “I don’t hand out marks. I’m talking about facts. They told me to raise taxes by NIS 8b. I cut them by NIS 16b., and I have a NIS 20b. revenue surplus. There was a NIS 24b. gap here. Imagine that I had accumulated a NIS 28b. surplus after preventing them from buying shoes for a child, a computer for a child, an extracurricular activity for a child, and had kept the money for myself... The economy is strong.”
Since taking office, Kahlon’s tax cuts include a 1 percentage point decrease in VAT (to 17%), a 3.5 percentage point cut in corporate tax (to 24% on January 1, 2017, and to 23% on January 1, 2018), widening income tax brackets, and increasing negative income tax grants. Kahlon’s associates are convinced that more tax cuts will continue to increase state tax revenues.
“Although some professionals complained that cutting taxes reduces state tax revenues, this policy has actually so far increased revenues, with surpluses setting a record,” senior Finance Ministry sources said on Wednesday.