Israel backtracks on VAT rate cut

A commitment by the new Netanyahu government to reduce the Israeli VAT rate on basic foodstuffs may not be withdrawn.

The promise made in the recent election to reclassify food from the standard rate of 18% to the reduced rate of ‘nil’ now looks uncertain. The measure was to target milk, bread and eggs. The measure was a concession to the ultra-orthodox parties which the ruling party wanted to attract.

Many economists have attacked the policy as fiscally negative. They also state that is would provide indiscriminate tax relief as VAT is paid by all consumers irrespective of their wealth and incomes.

Alternatives are now being proposed, including welfare benefit increases and negative income taxes.