The Council of State's ruling underscores the complexities of fiscal policy in times of governmental transition.
The debate over tax increases highlights the tension between immediate budgetary needs and long-term economic sustainability.
The special law is likely to pass through Parliament, but it may face significant amendments from opposition parties.
The government's reliance on tax increases may lead to public discontent and calls for alternative fiscal strategies.
Council of State Rejects Income Tax Indexation Proposal
In a significant ruling, the Council of State has declared that the proposed indexation of the income tax scale (IR) to inflation cannot be included in the upcoming "special finance law". This opinion, released on December 10, 2024, supports the government's stance amid the ongoing budgetary crisis following the censure of the previous government. The Council of State emphasized that such modifications to tax rules exceed the scope of the special law, which is intended solely for measures necessary to ensure the continuity of national life before the new financial year begins.
The implications of this ruling are substantial, potentially leading to increased income tax for approximately 17.6 million households and introducing new taxes for an additional 380,000 households. The special law, set to be presented in the Council of Ministers on December 11 and debated in Parliament shortly thereafter, aims to authorize the state to continue collecting existing taxes and to facilitate borrowing to cover budget shortfalls.
VAT Increase and Alternative Funding Solutions
In a related financial context, Shai Aharonovich, head of the Tax Authority, expressed skepticism regarding the government's decision to raise the value-added tax (VAT) to 18% starting January 2025. Speaking at a conference in Eilat, Aharonovich argued that increasing the VAT further to 19% would not effectively address the state budget shortfall, primarily driven by security-related expenditures. Instead, he suggested exploring alternative funding sources, such as reinstating property taxes and the Massuah tax, to mitigate the budget deficit.
Aharonovich's comments reflect a broader concern about the sustainability of tax increases in the face of economic pressures. He highlighted the need for a comprehensive approach to budget management, including discussions with industry representatives to resolve locked-in budgets totaling 10 billion shekels. The urgency of these measures is underscored by the impending debates in Parliament regarding the special law, which is crucial for maintaining public services and avoiding administrative paralysis.
