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Tax Breaks for Middle Class on the Way

The Knesset Finance Committee on Wednesday authorized a dramatic change in the Israeli tax code – making it more “middle-class friendly."
By David Lev
First Publish: 11/30/2011, 10:43 PM

Knesset FInance Committee
Knesset FInance Committee
Courtesy Knesset

The Knesset Finance Committee on Wednesday authorized a dramatic change in the Israeli tax code – making it more “middle-class friendly,” with new benefits that will put more money into the pockets of working Israelis. The changes are expected to be approved by the Knesset next week.

Chief among the changes is a reduction in income tax for Israelis earning between NIS 8,000-NIS 14,000 per month. Income tax for this group has been reduced by 2% permanently; the move will cost the state NIS 1 billion per year, the Treasury said.

Other changes include: Institution of a negative income tax for working women making less than a minimum amount (still to be decided), a rule change that will help single mothers and one-income families; a tax credit for working fathers who have children age three and under at home, the first time a child tax credit for males has been approved; a reduction in the interest rate on mortgages issued by the Housing Ministry to eligible families; and changes in capital gains taxes on investment apartments and families that own their own homes.

Committee chairman MK Moshe Gafni (UTJ) lauded the changes. “This is the first time we have successfully been able to change the model of income taxation. As a result of tax reform changes we are implementing, any changes the government seeks to increase its income will require the authorization of the Finance Committee, instead of allowing the Treasury to issue arbitrary taxation orders. We will thus ensure that the middle class and poor remain protected.”

Regarding the specific changes decided upon, Gafni said that “these are substantial changes that will benefit the middle class, that the Treasury agreed to after extensive negotiations. The demonstrations for social justice over the summer broke out because of a worsening of the financial state of the middle class and the poor. We are now changing tax policy to ensure that the middle class is less vulnerable. In addition, these changes, like the negative income tax, will have a dramatic effect on the situation of poor families,” Gafni added.

The changes were approved unanimously by Committee members, and the bill will be presented for its second and third Knesset readings next week; the bill is expected to pass easily.