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Israeli budget wins initial parliament approval

Published: Updated:

A budget of tax hikes and spending cuts won initial approval from Israel’s parliament on Tuesday but lawmakers from Prime Minister Benjamin Netanyahu’s Likud party vowed to amend the measure to ease the pain for middle-class voters.

Lawmakers voted 58 to 44 after a long debate in favor of the 17-month 2013-14 spending package, sending it to parliament’s finance committee for further review.

The budget wins final approval only after it passes a vote of that committee and then two further votes in the legislature.

Netanyahu has backed the budget drafted by his centrist coalition partner, Finance Minister Yair Lapid, who has warned the economy could collapse unless spending is reined back.

But some in Netanyahu’s Likud party and throughout the coalition and opposition think the combination of income tax rises and welfare cuts is too harsh.

Parliament needs to give final approval to the budget by the end of July or new elections will be triggered.

The draft would increase income tax in each earnings bracket by 1.5 percentage points, while the corporate rate would climb to 26 percent from 25 percent. Value added tax (VAT) already rose to 18 percent from 17 percent this month.

“The budget will pass as is today but we will change things in the finance committee,” said Gila Gamliel, a Likud member and government coordinator for the budget in the finance committee.

“I told the finance minister that it will not pass (the committee) and we won’t allow the budget to hurt the middleclass and young couples,” she said.

A spokeswoman for Lapid welcomed changes as long as there were alternative measures, saying: “things that they want to change cost a lot of money.

Complaints on Facebook

A month ago, cabinet ministers overwhelmingly approved the budget draft with cuts of at least 25 billion shekels ($7billion) between August 2013 and the end of 2014.

Israel’s budget deficit was 4.2 percent of gross domestic product (GDP) last year - more than double its initial target-due to overspending by the previous government and lower-than-expected tax revenue as the economy slowed.

Indecision over how to tackle the deficit brought down the previous government. That triggered an election in January and catapulted Lapid, a centrist who campaigned on promises that the middle class’s economic burden would fall, into Netanyahu’s right-leaning coalition government.

Many of the proposed budget measures will hurt the middleclass. Thousands have expressed their displeasure on Lapid’s Facebook page at the prospect of losing an estimated $2,000 a year through higher taxes and cuts to the child allowance.

Lapid has an ally in Bank of Israel Governor Stanley Fischer, who has been urging the government to take more responsible fiscal steps rather than populist ones.

The budget proposes a deficit of 45.6bn shekels, or 4.65 percent of GDP, in 2013 and 31.1bn shekels, or 3 percent of GDP, in 2014.

“Rather than evading responsibility, we chose to do the responsible thing - because Israel’s economy has no choice but to close the deficit as quickly as possible,” Lapid told lawmakers at the start of parliament’s budget debate.

The budget is based on 3.8 percent economic growth this year and 3.3 percent in 2014. Total spending, including some 80bn shekels in debt servicing, will be 388bn shekels in 2013, rising to 408bn in 2014.