The government on Wednesday announced a NIS 4.4 billion ($1.4 billion) plan to address the rising cost of living, which will include a suite of measures to lower taxes for working families and decrease the prices of energy and food staples.
The move was announced amid intense public anger over rising costs, after the price of both gasoline and electricity went up, and after several major manufacturers and importers delayed or scratched plans to raise the cost of goods due to the pushback.
In a primetime press conference, Prime Minister Naftali Bennett, Finance Minister Avigdor Liberman and Economy and Industry Minister Orna Barbivai shared their multipart strategy. While not on stage, Foreign Minister Yair Lapid also was involved in its development.
Bennett framed the plan as “a new contract between the government and citizens, and a rational one,” focusing most of its effort on working families. “Citizens who work and bear the burden — they deserve to save more,” he said.
Liberman denied that the content of the plan was swayed by public pressure, even if the timing was.
“Even without the last wave of cost increases, without the wave of media [attention], we would have published the same steps,” he insisted.
The plan includes measures to reduce income taxes for some Israeli families, immediately: The government will give an additional income tax credit point to each parent per child aged 6-12 in 2022. Each point is worth NIS 233 ($73) that will be added to applicable families’ take-home pay each month. The measure is expected to amount to an additional NIS 5,352 per family per child for the year. However, the measure, once enacted by legislation, is expected to last only for 2022.
It will benefit an estimated 530,000 working parents at the cost of NIS 2.1 billion to state coffers.
Middle-class working families are also expected to benefit from afternoon childcare subsidies, which will be extended to about 60,000 additional children in broader categories of socioeconomic standing, at an expected cost of NIS 150 million.
The government will also create a negative income tax, in the form of a grant, to the approximately 300,000 low-wage earners who bring home less than the threshold for income taxation. They will receive a one-time bump of 20% to their 2022 take-home pay. This measure, expected to cost NIS 250 million, will also require enacting legislation.
There is no income tax relaxation plan for taxpayers who fall outside of these parameters.
To address energy prices, the government will cancel excise taxes on coal for the rest of 2022 in order to reduce the expected price hike of electricity from 5.6% to 3.4%. Coal prices rose over recent months. The measure requires approval from the Electricity Authority and is expected to cost NIS 600 million.
Regarding food and consumer goods, the government will reduce tariffs on multiple imported products including food, toiletries and furniture.
Specifically, the plan is to remove customs duties on beef, fish, seafood, canned tuna, sausages, sauces, dried fruits, cakes and cookies, and flour. Tariffs on building and infrastructure materials, auto parts and household goods, among others, will be lifted. VAT is not addressed by the plan, nor is the direct cost of domestic goods. Finance Minister Liberman must issue an order to enable these measures, at the combined cost of NIS 1.26 billion.
Prices in Israel are displayed in their final-to-customer price point, meaning taxes are already baked into the final sticker price. It is unclear if or how the government will force retailers to lower sticker prices, commensurate with tax deductions, to ensure they do not pocket the difference.
Gas prices will not be addressed.
In addition to the plan above, Liberman announced the formation of a committee to investigate how to increase competition in the grocery market.
The ministers did not explain how the government plans to finance the plan, which is expected to divert NIS 4.4 billion from state coffers in 2022.
Price increase announcements have been rolling in since October, but only in the past week has the government felt the urgency to respond, following media and public pressure.
Some companies, such as Osem-Nestlé, partially capitulated to last week’s public uproar, canceling planned hikes in food prices for the next year.
In December 2021, the Economist ranked Tel Aviv the world’s most expensive city, citing the strength of the shekel and increased costs of food and transportation.