Photo Credit: Hillel Maeir/TPS
Finance Minister Moshe Kahlon

Finance Minister Moshe Kahlon said Thursday that he would cut income tax for “working couples” immediately after the Passover holiday.

While Kahlon did not specify exactly by how much he would cut taxes and in which brackets, it is believed that the cuts will be made in the NIS 11,000 to NIS 20,000 bracket.

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“We are in March, and three months into the year it seems that the economy is doing well with strong growth,” Kahlon told Army Radio. “As I promised, immediately after Passover we will definitely make a decision on cutting taxes; the money from tax cuts will generate growth and help working couples by giving them more disposable income.”

The planned cuts follow a budget surplus of some NIS 20 million in 2017 and a surplus of NIS 2.3 billion for the first two months of the year. Last April, Kahlon announced the NIS 4 billion Net Family Plan which included subsidies for after-school programs, extra tax points for men and women with children up to six years old, reduced taxes on mobile phones, baby clothes and shoes, and expansion of a tax rebate program for low wage earners.

Following that, in May, the finance ministry said that at the beginning of 2018, it would consider tax cuts for wage earners in the NIS 11,000 to NIS 20,000 bracket.

The Bank of Israel has expressed opposition to tax cuts saying they would be countercyclical at this time.

Addressing the cabinet in late October, Bank of Israel Governor Karnit Flug said: “There is no reason to assume in advance that there will be more pleasant surprises through one-off increases in tax revenues. Even though revenues were higher than forecast in the past four years, there is no need to go too far back in our history to remember years in which there was a sharp decline in revenue due to global economic developments that are completely exogenous and outside of the control of policymakers in Israel.”

Flug also noted that since the economy is already at full employment, tax cuts at this time would be pro-cyclical, meaning their contribution to expanding economic activity would be small. “The pro-cyclicality will become more serious if, as a result of current tax cuts, the need to raise taxes increases if and when there is a slowdown in activity,” Flug said.

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