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Israel Raises Taxes, Cuts Planned Spending in Draft Budget

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May 7 (Bloomberg) -- Israel’s Finance Ministry proposed raising taxes and cutting planned spending in the draft budget for 2013-14 it presented today, even as a reported settlement construction slowdown risked jeopardizing its approval.

Army Radio reported today that Prime Minister Benjamin Netanyahu ordered Housing Minister Uri Ariel to freeze all construction tenders in Jewish West Bank settlements, the core of the Palestinians’ hoped-for state. While not explicitly confirming that, Ariel told the station his Jewish Home Party would “weigh its support for the budget” if it did not earmark funds for settlement construction.

Jewish Home holds 12 of parliament’s 120 seats, and the Netanyahu government commands a majority of 68. Netanyahu, who is traveling in China, declined to comment on the Army Radio report.

A copy of the plan the ministry sent by e-mail today set 2013 spending at 388 billion shekels ($109 billion), barely changed from 385 billion a year earlier. The budget for 2014 was set at 408 billion shekels. The ministry proposed the plans be brought by June 10 to parliament, where lawmakers including opposition leader Shelly Yachimovich of Labor have already criticized it as hurting taxpayers.

The Globes financial newspaper said the budget draft pares 7 billion shekels from planned spending, including public sector wage raises and defense outlays.

The financial daily Calcalist said it includes a proposed 1.5 percentage point increase in income tax across all brackets and an extra 1 percentage point to value-added tax, bringing it to 18 percent. Corporate tax will also be boosted to 26 percent.

The spending plan raises the budget deficit target to 4.65 percent of economic output this year, a level the central bank has said is high. Standard & Poor’s lowered the country’s local currency rating to A+/A-1 from AA/A-1+ on May 2, citing “recent fiscal slippage.”

To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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