Taxing our mind

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Israelis don’t know what to be worried about most or first: loose chemical weapons in Syria, or our every higher tax bill; uranium-enrichment centrifuges in Iran spinning merrily away, or our mushrooming monthly expenses. Abroad and at home, the challenges abound.

Published in Israel Hayom, May 12, 2013. (An earlier version of this article was published by Canada’s Center for Israel and Jewish Affairs).

Cutting and taxing: Finance Minister Yair Lapid

With Syria disintegrating and hi-tech weapons popping loose, Hezbollah and Iran threatening retaliation for apparent Israeli bombing raids, and Sinai becoming an Al-Qaeda playground – you would think that we Israelis have plenty to worry about.

We do. But we also are intensely focused these days on the local economic situation. Taxes are taxing our mind, in addition to the terrorists in Syria and Sinai.

The national budget for 2013-2014 promulgated last week by new Finance Minister Yair Lapid digs deeply into the pocket of every Israeli citizen, including middle class Israelis whom Lapid had promised to protect and advance.

The average bread-winner faces a whole lot of new taxes, including a 1.5% income tax hike in all personal tax brackets, a 1% value added tax increase on all goods and services, new health and social security taxes on housewives, and new taxes on pension savings, tobacco and alcohol and more. Co-payments for medical treatments covered by the public health basket will also be raised, meaning that we’ll be paying more for doctor’s visits, trips to the emergency room, medicines, and equipment such as hearing aids.

It will become much harder to qualify for unemployment benefits, municipal tax reductions, and reductions in health plan premiums and school fees. Both parents will have to be working in order to qualify for many such benefits. (The new rules will strike most deeply at the Ultra-Orthodox world, where more than 40% of men are studying, not working; and the Arab community, where women do not often work outside of the home).

Separately, the price of electricity is to rise 5.5%. Electricity already has gone up over 20% in the past three years. Basic foodstuffs under government price controls already have risen this past year, including bread, milk, cheese and eggs, and these goods will now become more expensive as well, as will water supply to both households and industry.

Drastic cuts in government spending will affect all of us too, including close to NIS 2 billion ($560 million) in cutbacks to child benefits, cuts in dental care for children, a complete cut-off of government funding for after-school programs for children, and deep cuts in school budgets.

In short, every citizen in Israel is going to feel the pinch; actually, much more than a pinch. Some of the fee hikes and new taxes take effect already this week by executive order; VAT goes up next month; and the rest of the “gzeirot” (the unpleasant decrees, as the media has dubbed them) will be implemented after the Knesset passes the relevant legislation in late July.

It’s not surprising that thousands of Israelis took to the streets last night to protest the tax hikes. Experts estimate that most families will see their disposable monthly income drop by close to NIS 1,000.

What makes all these “gzeirot” even more upsetting is that nobody is really at fault for our tight economic spot. We can’t really blame Lapid, or even Prime Minister Netanyahu, for the situation. Had Labor leader Shelly Yachimovich been the finance minister, she would have been forced into making similar cutbacks.

The economy is actually in good shape, with high rates of growth and low unemployment, and a stable financial sector. But the global economic downturn has negatively affected Israel’s high-tech and other export sectors, leading a significant drop in government tax revenues. Defense spending shot up over the past five years, for obvious and uncontrollable reasons.

The mass social protests of two summers ago also forced the government into launching some expensive new social programs, such as free kindergarten education, and cheaper government-backed mortgages.

These additional expenditures and revenue-holes have now coalesced into a big budget deficit. Now we all have to pay the bill.

There are more economic dislocations ahead. Netanyahu, Lapid and Economy Minister Naftali Bennett are not finished with their “shock and awe” onslaught. They intend to next take on some of the biggest unions in the country (such as the port and dock workers and the electricity workers union), chop up cartels, break industrial and consumer monopolies, and burst bureaucratic blockages that stand in the way of small business advancement.

The unions will strike in protest, the economy will lose billions each day, and additional taxes and cutbacks will follow.

With so many significant shake-ups and shake-downs underway and still to come on the domestic front, we Israelis don’t know what to be worried about most or first: loose chemical weapons in Syria, or our every higher tax bill; uranium-enrichment centrifuges in Iran spinning merrily away, or our mushrooming monthly expenses. Abroad and at home, the challenges abound.

David M. Weinberg is a think tank director, columnist and lobbyist who is a sharp critic of Israel’s detractors and of post-Zionist trends in Israel. Read more »
A passionate speaker, David M. Weinberg lectures widely in Israel, the U.S. and Canada to Jewish and non-Jewish audiences. He speaks on international politics and Middle East strategic affairs, Israeli diplomacy and defense strategy, intelligence matters and more. Click here to book David Weinberg as a speaker

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