In a dramatic reversal of policy, Prime Minister Netanyahu and Finance Minister Yuval Steinitz announced Monday evening that there would be no value-added tax (VAT) applied to fresh produce. Public and coalition pressures apparently led to the decision.
The Shas and Labor parties and other MKs, within the coalition and outside of it, opposed taxes on such basic foods on 
Netanyahu said that he sees himself as obligated "to listen to the public."
the grounds that it would hit the lowest socioeconomic strata hardest. As a result, it was not clear that Netanyahu would be able to recruit enough Knesset votes in support of the measure.
In addition to the coalition considerations, produce growers and sellers held a vocal protest last week in the Mahaneh Yehuda open-air market in Jerusalem. They were joined by fresh produce buyers who were concerned that they would be forced to cut back on purchases of fruits and vegetables due to the increased cost.
Announcing his new position, Prime Minister Netanyahu said that he sees himself as obligated "to listen to the public." Therefore, he said, "this is not the time for a new VAT."
Despite the apparent popularity of the lifting of the VAT threat from Israeli produce, the move is opposed by the Finance Ministry's professional staff. The ministry was seeking a 16.5 percent tax, which was calculated to raise 1.8 billion shekels in revenues for the government.
So certain was Finance Minister Steinitz of the correctness of his position that he told a Likud faction meeting Monday morning that "VAT on fruits and vegetables will be imposed with Shas or without Shas." Steinitz's comments came after Minister Eli Yishai, Shas party chairman, was unable to come to any compromise solution on the produce issue with Finance Ministry personnel.
The government already approved an increase in VAT on goods and services that went into effect on July 1, 2009. The tax was raised one percent to 16.5 percent as part of an overall stimulus package to reduce the projected national deficit.
Although the VAT proposal is a tax hike, a key component of the Netanyahu economic strategy is to stimulate the economy through tax cuts. In April, the Prime Minister announced an immediate cut of one percent in corporate income tax and an additional one percent cut in personal income tax in 2010. He also said he plans to cap personal income tax rates at 39 percent (as opposed to the current 46 percent) and corporate income tax rates at 18 percent (as opposed to 26 percent) within the next six years.
MK Livni: Netanyahu Throws Funds at Everyone
Opposition leader Tzipi Livni, head of the Kadima party, told the Knesset plenum Monday that the government's budget is harmful to the weaker socioeconomic levels of society. The budgetary allocations, in Livni's view, are the result of a weak prime minister whose policies are shaped by coalition demands.
The Kadima chairwoman made the comments in the context of a no-confidence motion sponsored by her party to mark the Netanyahu administration's first 100 days.
"The national budget is a cruel budget," Livni said. "There is another option. We are tired of discussing the coalition agreements and the billions spilled like water - scandalous payments for a bloated government committing itself to every demand made on it."