Transcript Measures for Reducing the Deficit and for Coping with the Effects of

Measures for Reducing the Deficit and for
Coping with the Effects of the Global Economic
Crisis on the Israeli Economy
August 2012
The Crisis in Europe, 2012
Adverse effect
on credit
ratings
Cut in
rating outlook:
Germany,
Holland,
Austria
Rating
downgrade
Greece -12
Spain -5
Portugal -5
Ireland -4
Italy -3
France -1
Austria -1
Finland
Growth 0.6%
Norway
Growth 1.8%
Ireland
Growth 0.5%
Great Britain
Growth 0.2%
Sweden
Growth 0.9%
Holland
Growth -0.5%
Belgium Germany
Growth
Growth
1.9%
0.0%
Austria
Growth
0.9%
France
Growth 0.3%
Spain Growth
-1.5%
Portugal
Growth -3.3%
Italy.
Growth
-1.9%
Greece
Growth
-4.7
2
Rise in Global Risks
 Deepening recession in Europe that is proving worse than
the forecasts
 Great Britain – The GDP declined by 0.7% in the second quarter
 Spain – Forecasts have been lowered; an additional program of cutbacks
has been formulated
 Italy – Rating downgrade; an additional program of cutbacks has been
formulated
 Greece – Increasing difficulties
 The crisis is felt even in the stable economies
 Moody’s has cut the rating outlook for Germany and Holland.
 In the U.S. – Significant slowdown in growth in Q2 2012 and stagnation
in the job market; the central bank (the Fed) and the International
Monetary Fund have lowered growth forecasts
3
Yields on Ten-Year Bonds
25
20
Greece*
15
10
Spain
Italy
5
Israel
France
U.S.
Germany
Source: Bloomberg
* Greece is on a separate axis – the yield in July 2012 stood at 26%.
07/2012
05/2012
03/2012
01/2012
11/2011
09/2011
07/2011
05/2011
03/2011
01/2011
11/2010
09/2010
07/2010
05/2010
03/2010
01/2010
11/2009
09/2009
07/2009
05/2009
03/2009
01/2009
0
Growth Forecast for 2012
The debt crisis in the Euro zone and the fiscal difficulties in the U.S.
have caused a significant drop in the growth forecasts
Source: The Economist
5
Unemployment Rates
in the Euro Zone
30%
2007Q4
25%
‫אחרון‬
‫נתון‬
Latest figure
2009Q4
24.6%
22.5%
20%
19.0%
15%
10%
10.2%
8.7%
8.0%
11.1%
9.8%
7.3%
10.1%
9.4%
7.6%
10.1%
8.2%
6.3%
9.3%
8.2%
5.8%
5%
0%
Spain
‫ספרד‬
Source: Eurostat
Greece
‫יוון‬
Euro Zone
‫האירו‬
‫ גוש‬France
‫צרפת‬
Italy
‫איטליה‬
‫"ב‬U.S.
‫ארה‬
Developments in the Job Market Since the
Beginning of 2012 (in Thousands)
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Change in Participation and Unemployment
Since the Beginning of 2012
Month
Change in Participation
Change in
Unemployment
0.8%
0.4%
67.7 (in thousands)
19.4 (in thousands)
0.9%
0.4%
79.8 (in thousands)
18.8 (in thousands)
June v. January
June v. Q4 2011
Growth of Israel’s GDP
(Annualized Quarterly Growth Rate)
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Government Deficit as a Percentage of GDP –
Planning v. Performance
10
Required Policy
• Immediate steps to meet the deficit target for 2013
• Immediate steps to rein in the deficit in 2012
• Immediate steps to comply with the limit on expenditure in 2012
12
Significance of Failure to Take
Immediate Steps
• Risk of reduction in the credit rating
• Increased financing costs
• Loss of market confidence
• Impairment of private sector funding sources
Severe financial crisis necessitating harsher steps
13
Deficit Target and Additional Required
Tax Collection
 July 1: Government resolution to increase the deficit target for
2013 from 1.5% to 3.0% of GDP
 1.5% of GDP = Increase of NIS 15 billion in the deficit, resulting
in a reduction of NIS 15 billion in tax increases
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Required Measures
Measure
VAT increase from 16% to 17%
Collection of tax on trapped corporate profits
Deepening of tax collection and fighting black
money
One percent tax increase for wage earners earning
more than NIS 14,000 a month
Increase in purchase tax on cigarettes and beer
Increase in employers’ National Insurance
contributions
Two percent surtax on annual income above NIS
800,000
Adjustment of the green taxation formula for
vehicles
Extension of the temporary order on purchase tax
No index adjustment for the top three tax brackets
Total
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Additional Revenue for
2013 in NIS Millions
4,400
3,000
2,000
1,200
1,000
950
600
400
300
300
14,150
Steps to Increase Tax Collection and Fight
Black Money
July 2012
Key Challenges
Money laundering
Organized crime
False invoices
Concealment of assets
Fictitious imports and exports
Smuggling of funds abroad
Establishment of dummy corporations
Effective handling of the debt load
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Proposed Bill for
Fighting Black Money
Tax offenses as source offenses (in the Prohibition of Money
Laundering Law)
Transfer of information to the Israel Tax Authority from the
Anti Money Laundering Authority
Reduction in the amount of cash transactions between dealers
(from NIS 20,000 to NIS 10,000 plus a 15% fine)
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Proposed Bill for Increasing the
Efficiency of the Tax Collection Processes
Expansion of debt collection powers
Tax offsetting between tax systems
Prevention of the concealment of assets
Piercing of the corporate veil – transfer of activity
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Proposed Bill for
Increasing Enforcement Efficiency
Withholding tax refunds to those
who fail to file tax returns
Administrative penalties / financial sanctions (for
incorrect reporting / false invoices)
Effective tax collection in assessment and appeal
processes (fines for arrears from the assessment date and
bond in an appeal proceeding)
Supervision of the transfer of goods to prevent tax
evasion (on entering Eilat and in transfers to the
Palestinian Authority)
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Trapped Corporate Profits
July 2012
Trapped Corporate Profits
Trapped corporate profits
Approx. NIS 17 billion
The temporary order will net
NIS 3 billion
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Income Tax Rates for Individuals
Proposed Increase in 2013
Tax Brackets
2007
2012
2013
According to the
Bill
)NIS thousands per month,
2012 prices)
)Weighted for
changes in the tax
brackets
Up to NIS 5,200
10.4%
10%
10%
Up to NIS 8,880
21.0%
14%
14%
Up to NIS 14,000
30.2%
21%
21%
Up to NIS 20,000
35.4%
30%
*31%
Up to NIS 41,830
36.3%
33%
*34%
Above NIS 41,831
48.0%
48%
*48%
Recently raised from
45%
Income above Nis 67,000
48%
48%
**50%
* Plus freezing of linkage
** Including surtax
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Examples of the Effect of the
Changes in Income Tax
Wage
4,000
6,000
8,000
10,000
12,000
15,000
20,000
40,000
100,000
Man
Woman with 3 Children
Additional Tax
0
0
0
0
0
49
99
352
1,037
Additional Tax
0
0
0
0
0
49
99
352
1,037
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Thank you
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