Israel cabinet OKs tax changes to help consumers

JERUSALEM Sun Oct 30, 2011 2:34pm EDT

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JERUSALEM Oct 30 (Reuters) - Israel's cabinet approved a series of tax changes on Sunday aimed at putting more money in consumers' pockets following protests against the high cost of living.

Ministers voted unanimously to lower taxes on petrol and add 5,000 shekels ($1,400) a year to the salaries of fathers of children under three years of age beginning in 2012.

They will be funded in part by an increase in the corporate tax rate to 25 percent from 23 percent and a hike in taxes on capital gains to 25 percent from 20 percent.

A "rich tax" will also be imposed on those earning more than 1 million shekels a year. The tax components of the plan still require parliamentary approval.

"The consumer will feel in his pocket the cabinet's decision today. We will continue to act with fiscal responsibility in order to avoid global economic turmoil," the office of Prime Minister Benjamin Netanyahu quoted him as saying after the cabinet vote.

Netanyahu said that more steps to reduce the cost of living for Israelis would be approved later.

Earlier this month, the cabinet passed an economic reform plan drawn up by a government-appointed panel led by economist Manuel Trajtenberg to boost welfare spending and lower defence expenditures.

The Trajtenberg committee was formed after weeks of demonstrations over the summer calling for lower living costs -- particularly for fuel, food, housing and child care -- rocked Netanyahu's right-wing coalition government.

Protesters camped out in major cities throughout the summer and their activism culminated last month in one of the largest-ever demonstrations in Israel's history.

The protests along with threats of consumer boycotts, led some food makers to drop prices on cheese, baby formula and other staples.

About 25,000 protesters took to the streets on Saturday night to keep pressure on the government.

A Channel 2 poll on Saturday showed that 60 percent of Israelis rate Netanyahu's performance as good or very good, although 71 percent believe more social protests are warranted.

Despite the new measures, protesters have not been satisfied with the government's response and protest leaders have demanded that the state budget be discarded in a favour of a social-welfare budget.

"Whoever thinks the government can spend an unlimited amount of money, thereby increasing the national overdraft, I say: 'We will not embark on a budgetary adventure that would jeopardise the stability of the Israeli economy and bring about mass layoffs,'" Netanyahu said.

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