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August 2012

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

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August 2012

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  1. Measures for Reducing the Deficit and for Coping with the Effects of the Global Economic Crisis on the Israeli Economy August 2012

  2. 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% Sweden Growth 0.9% Ireland Growth 0.5% Holland Growth -0.5% Great Britain Growth 0.2% Germany Growth 1.9% Austria Growth 0.9% Belgium Growth 0.0% France Growth 0.3% Italy. Growth -1.9% Spain Growth -1.5% Portugal Growth -3.3% Greece Growth -4.7

  3. 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

  4. Yields on Ten-Year Bonds Greece* Spain Italy Israel France U.S. Germany Source: Bloomberg * Greece is on a separate axis – the yield in July 2012 stood at 26%.

  5. 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

  6. Unemployment Rates in the Euro Zone Spain Greece Euro Zone France Italy U.S. Source: Eurostat

  7. Developments in the Job Market Since the Beginning of 2012 (in Thousands)

  8. Change in Participation and Unemployment Since the Beginning of 2012

  9. Growth of Israel’s GDP(Annualized Quarterly Growth Rate)

  10. Government Deficit as a Percentage of GDP – Planning v. Performance

  11. 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

  14. Required Measures

  15. Steps to Increase Tax Collection and Fight Black Money July 2012

  16. 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

  17. 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)

  18. 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

  19. 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)

  20. Trapped Corporate Profits July 2012

  21. Trapped Corporate Profits Trapped corporate profits Approx. NIS 17 billion Tax paid until today – NIS 500 Million only The temporary order will net NIS 3 billion

  22. Income Tax Rates for IndividualsProposed Increase in 2013 * Plus freezing of linkage ** Including surtax

  23. Examples of the Effect of the Changes in Income Tax

  24. Thank you

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