Prime Minister Binyamin Netanyahu dark 311 (R).
(photo credit: Avi Ohayon / GPO)
The government’s fiscal policy is not consistent with what it preaches, two
economists from the Van Leer Jerusalem Institute argued in a new position paper
They claim that Prime Minister Binyamin Netanyahu’s
opposition to raising direct taxes has led to an increase in indirect taxes that
in turn has caused more unequal distribution of income.
Spivak and Nathan Zussman submitted that Israel is in an unusual position within
the OECD, in that it focuses particularly heavily on indirect taxes, such as the
value-added tax. This indirect tax burden strikes at the government’s ability to
fulfill its aim of bridging the gaps in income distribution, they said. The
situation would likely worsen if the government carries through with a plan to
further lower direct taxes, such as income tax, they added.
their point, the authors demonstrated that in 2009 Israel collected indirect-tax
revenues to the tune of 14.49 percent of GDP, while direct-tax revenues
constituted 16.9% of GDP.
In other words, indirect-tax revenues amounted
to about 86% of direct-tax revenues, putting Israel behind only Chile, Mexico,
Turkey and South Korea among developed countries in its reliance on indirect tax
to fund government expenditure.
In every other country to which Israel
was compared, indirect-tax revenues totaled no more than 70% of directtax
revenues. In Switzerland, Austria, Belgium and Spain that figure added up to no
more than 40%.
Part of the problem appeared to lie with the
implementation of the government’s two-year budget for 2011- 12, Spivak told The
Jerusalem Post Wednesday by phone. The unorthodox approach had caused the
government to overspend in 2011, meaning it was playing catch-up to meet its
targets the following year, he said.
“The whole idea of the two-year
budget was to create some order: ‘Here is a two-year plan, we know exactly what
will happen, there is a path, we won’t need to have arguments between political
parties again in one year’s time,’” Spivak said.
“[But] what did we get?
We got disorder.”
Spivak and Zussman presented their findings Wednesday
evening at the Van Leer Jerusalem Institute before an audience that included
Bank of Israel Deputy Governor Zvi Eckstein, Knesset Finance Committee Chairman
Moshe Gafni and Eyal Epstein, deputy director-general of the Finance Ministry’s
“I think that it’s very important that Gafni know that
there are some inconsistencies between the main aims in the government budget,”
Spivak said, added that the same message was also sent to the government last
year prior to the budget deliberations and was ignored.
“The Bank of
Israel has written similar things [too],” he said. “We are not saying anything
particularly out of the ordinary.”