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Israel Cancels Some Sales Taxes, Extends Unemployment Benefits To Rescue Economy

Prime Minister Benjamin Netanyahu and Finance Minister Israel Katz on Sunday said purchase taxes on a series of products, including electronics and clothing, would be canceled to help Israelis cope financially with the pandemic, as they extended unemployment benefits for recently laid off Israelis by another month.

The plan, announced in a joint statement, will see duties and taxes for the following products lifted: cellphones, electronics, clothing, shoes, home appliances and lighting, toys, cosmetics, baby products, and glasses.

The cost of the waiver to the state coffers is projected at NIS 1.45 billion, with taxes on most of the products hovering around 12 percent to 15%, and rising up to 30% for some entertainment equipment. The move comes after consumer spending took a steep dive as the virus spread in Israel.
The statement said the slashing of the taxes was permanent. Both Katz and Netanyahu “were presented with an effective evaluation which showed that the temporary cancellation of duties and purchase taxes led to a significant drop in the prices of consumer goods over time, also in comparison to trends in other countries,” it said.

In addition, Netanyahu and Katz agreed to extend the eligibility of Israelis placed on unpaid leave to receive state unemployment benefits for another 35 days, to account for the nationwide lockdown imposed by the government for around that amount of time.

“The goal here is to propel the economy, to get the wheels moving, to make it easier for you, citizens of Israel,” said Netanyahu in a statement.

Katz said the “most important thing,” was “extending the eligibility for unemployment for young people, to give them another month for the time the economy was closed. We’ll add this month on, such that when their unemployment is set to end, they will receive another month. This is good news for hundreds of thousands of Israelis.”

Hundreds of thousands of Israelis remain unemployed due to the pandemic, most of them put on unpaid leave and collecting state benefits. According to the Employment Service, nearly 300,000 have returned to work since mid-April, when the economy began resuming activity, but over 100,000 others lost their jobs. The service has ceased to publicize the updated unemployment rate since late April, reporting only those who rejoined the workforce. The Ynet news site on Saturday placed the number of currently unemployed at 950,000, down from 1.2 million in April.

According to reports on Sunday, Israel’s budget deficit rose to 6% of GDP in May, up from 4.8% in April.

Israel’s economy contracted by 7.1% in the first quarter of 2020 due to the coronavirus pandemic, the sharpest decline in 20 years, according to an estimate based on partial data released by the Central Bureau of Statistics in late May. The CBS noted that the contraction of the economy was more severe than after the 9/11 attacks and the 2008 global financial crash.

The area of the economy that saw the most damage was in private consumption — according to the numbers, the only area of personal spending to see an increase was in food, beverage and tobacco, which rose by 5.8% compared to the previous first quarter. All other areas — clothing, household goods, cars, small electrical goods, furniture and jewelry — saw a decrease in consumer spending.

According to a government survey in late May, nearly half of Israelis say they are worse off financially since the coronavirus pandemic and more than one in seven are afraid they will lose their home or say they have to cut back on food consumption.

By TOI Staff