Trajtenberg: Gov't adopted most of recommendations

Manuel Trajtenberg, the economics professor drafted by Prime Minister Binyamin Netanyahu to craft a response to last summer’s social protests, said in an interview published in this week’s Jerusalem Report that Israel faces a stark choice between defense spending and social reform.

He also said that the time might be near when the government would have to raise more taxes, particularly for the super-rich.

In August 2011, Trajtenberg was appointed the chairman of the Committee for Socioeconomic Change. Its 14 members produced a major 267- page policy-reform document in just 50 days.

Six months later, Trajtenberg said that most of the committee’s recommendations have already been adopted, but there is still much to do to reassure the public that took to the streets in such large numbers last summer.

“I think that the basic trade-off Israel faces is between defense and social services. Any attempt to look at it differently is deceiving the public,” he said.

Trajtenberg, a former economics professor at Tel Aviv University, was the chairman of the National Council for Economics in the Prime Minister’s Office, where in 2007 he convened the Brodet Committee that studied flaws in the military budgeting process and recommended large cuts in defense spending.

“I’m not blind to the military threats to the country. I know them very well. I know the defense-budget difficulties because I was a member of the Brodet Committee; I set up that committee. I still believe that that is the trade-off. Essentially, if one internalizes that the trade-off has consequences for lots of other things, including your attitude towards the strategic alliance with the US and our attitude toward the Palestinian conflict. It is not just 2 billion here and there,” he said.

Many of Trajtenberg’s recommendations on taxation went into effect in January.

These include partial cancellation of a planned excise tax on fuel, increases in corporate taxes, an increase in the top income tax bracket from 44% to 48%, and extra tax allowances for children under three years.

In addition, dairy and egg products will soon come under tighter supervision.

Tenders will be published for new public transportation companies in order to increase competition and reduce travel costs. The cement industry, one of the strongest monopolies in the country, will be opened to outside competition.

The Antitrust Authority has been granted expanded powers.

One huge change inspired by Trajtenberg’s committee is the extension of free education to all children from age three, adding a quarter of a million students to the state-supported education system and subsidized after-school programs next autumn.

Overall, Trajtenberg said he was satisfied with the speed of reform and believes it will help to answer the main socioeconomic difficulties that the committee identified, including declining investment in government services, economic concentration and a widespread feeling of estrangement from government institutions.

“Of the chapters of recommendations that have been brought to the government, depending on how you weight it, I would say that between two-thirds to three-quarters of the chapters have been adopted,” Trajtenberg said.

He said he stood by the budget rule of restricting public expenditure to less than the growth in the economy, but more money could be made available if the government agreed to raise taxes.

“I still suggest raising income taxes significantly,” he said. “That can help reduce the deficit and the debt, and can also create a pool of resources.

But, for that, the government must show that it does not play the game dictated by the super-rich.”

The full interview can be found in the current issue of The Jerusalem Report.