Israeli Budget Gap to Widen
Written by: Aaron Katsman | December 12, 2008
Due to the economic slowdown, which will hurt tax receipts, as well as an expected pickup in government spending, the Bank of Israel has estimated that the Israeli budget deficit will reach 3% of GDP. This happens to be a great number compared to the rest of the developed world where it is much higher, over 4% in most cases.
According to a JPost article, Stanley Fischer has nonetheless called for a reduction in taxes: “The government should go ahead with its plan to reduce taxes next year, even while the deficit is expected to grow, as tax receipts fall due to the slowdown and government spending rises.”
The fact is that by cutting taxes, government tax collection will actually increase, as supply-side economics has continually taught us. If people make more money, even if they pay a lower tax rate, the amount they pay will actually be greater. It’s the beauty of economic growth and lower taxes. Too bad the world, in its’ rush towards nationalization, has forgot this basic principle.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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