Israeli Cabinet Approves Tax Plan Following Social Protests

The Israeli Cabinet approved a plan that will raise taxes on companies and the wealthy while easing the burden on the middle class, following mass street protests over the high cost of living.

The proposal, which now goes to parliament, calls for boosting company and capital gains taxes and imposing a surtax of 2 percent on those whose annual income exceeds 1 million shekels ($280,000), Prime Minister Benjamin Netanyahu’s office said in a text message to reporters. The increased revenue will help fund the cancellation of a planned increase in the gasoline tax, the removal of import duties on products that are not also made locally, and the lowering of the purchase tax on some items.

“The consumer will feel the government’s decision today in his pocket,” Netanyahu said in the text message.

Hundreds of thousands of protesters demonstrated during the summer calling for lower prices, more affordable housing and free pre-school education. In response to the protests, Netanyahu appointed a committee led by economist Manuel Trajtenberg, which recommended the tax changes, along with other proposals, including a cut to the defense budget.

“The increase in the company tax could hurt investment,” Alex Zabezhinsky, chief economist at DS Securities & Investment Ltd. in Tel Aviv, said by telephone. “The world is a very competitive place.”

Israel’s benchmark bond fell for a second day on concern the government may need to increase borrowing. The decline pushed the yield on the 5.5 percent bond due in January 2022 up two basis points, or 0.02 percentage point, to 4.66 percent at the 4:30 p.m. close in Tel Aviv.

Under the plan approved today, the capital gains tax will be increased to 25 percent from 20 percent and the company tax will rise to 25 percent from 24 percent, the prime minister’s office said. The changes in income tax and company tax will be reviewed by 2014, it said.

To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net

To contact the editor responsible for this story: Louis Meixler in Jerusalem at lmeixler@bloomberg.net.