The tax increases promoted by the Ministry of Finance, which are ostensibly intended to finance Israel’s war with Gaza, are expected to increase economic disparities in Israel. They do not include a progressive mechanism which would focus the increases on the rich and powerful. Rather, the working and the middle classes will pay the price.
Despite Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich’s stated opposition to tax increases, certain hikes have already been approved, with more believed to be on the way.
It is worth noting that the gross salary of Israeli ministers is about 53,000 shekels ($14,400) per month. Their net salary sits at more than 30,000 shekels ($8,100) per month. The minimum wage in Israel is about 11% of ministers’ wage at only 5,571 shekels ($1,500) per month.
The increase in the coal tax is indirectly imposed on the electricity tariff, which is paid by all Israelis. Smotrich’s plan also undoes the fuel excise tax discount, raising the cost of owning a vehicle. It is difficult to analyze the effect of this tax by class, but it is clear that it will particularly harm Arab towns in the periphery, where public transportation use is less relevant as an alternative to private vehicle ownership than in the Jewish towns and cities.
The planned tax increase on tobacco is framed as ‘encouraging a healthy lifestyle,’ but according to the treasury’s own projections, tobacco consumption will not change and smokers will simply pay more. This tax is also biased against the lower socioeconomic deciles, where the proportion of smokers is higher.
The healthcare tax increase will be imposed on all employees, but not on employers and income from capital. And finally, the tax credit points for parents, which particularly benefit those with high wages, have not been abolished, and the government intends to increase parental tax benefits. This is an inadequate alternative to providing free education services from the age of zero to three.
The government intends to raise the value-added tax (VAT) from 17% to 18% in 2025 and to make a decision on this as early as 2024. An increase of one percentage point in this tax is expected to generate 7.2 billion shekels ($1.9 billion) for the state coffers. The impact of the VAT on the lower deciles is greater because a higher percentage of low-income paychecks is spent on current consumption rather than investment and savings. Collecting such a large amount in such a non-progressive manner will be a particularly hard blow to the working public, adding insult to the injury of the 2024 tax increases.
