Feeling the pinch

Netanyahu must be mindful that his real battle is to maintain budget’s integrity in face of mounting pressure for an inflationary spending-spree.

February 9, 2011 23:40
3 minute read.

Eini Minimum Wage 311. (photo credit: Ofer Amram)

The Treasury’s spreadsheet aces, up to their necks in what-if scenarios, targets and simulations, shouldn’t be expected to picture before them the travails of the ordinary taxpayers who foot the national bills. That is the task of political leaders, elected to steer officialdom in given directions.

It is therefore more than disingenuous for the government – from the prime minister on down – to now play Good Cop to the Finance Ministry’s Bad Cop and point fingers at the ministry for inordinate price increases on most everything.

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The general public isn’t an aggregate of fools. We all read Binyamin Netanyahu’s lips during the last election campaign when he promised not to increase taxes. The fact that he didn’t raise income tax – and even gave some of us minuscule breaks – is no great comfort. While progressive direct taxes are stable, regressive indirect taxes mushroom wildly all around us.

There’s no householder who doesn’t feel the pinch. While most wages have essentially stayed unchanged, municipal rates are going through the roof. Water prices are hiked as if this were a dispensable extravagance. Electricity costs are skyrocketing. Filling up the car is a near-luxury, as is stocking up on even some of the most basic groceries (like bread, vegetables and dairy products).

With all this staring us in the eye, the feel-good factor – which accrued from our having survived the 2008-09 recession better than other countries – no longer affords sufficient solace. Hence Likud politicos with sensitive antennae are warning about the likely fallout from economic insensitivity in high places. Even the industrialists have expediently joined ranks with the labor unions to complain.

TO BE sure, objective factors mandate some price modifications. Food costs around the world have reached a historic peak for the seventh month in a row. The UN’s monthly Food Price Index is at its highest level since its introduction 20 years ago. Bad weather, including blizzards in America’s Midwest and floods in Australia, continues to push prices up.

When crude oil, food staples and raw materials become pricier on global commodity markets, there’s no way we can wrap ourselves in a cocoon and not adjust costs accordingly. When our severe drought continues for the seventh year running, we cannot pretend that water isn’t scarce and therefore justifiably more expensive.

The problem is that the hikes here exceed anything warranted by international commerce or local aridity.  Well over half the price we pay at the gasoline pump is for excise taxes, not for the product proper. Moreover, our taxes are then re-taxed. We pay whopping VAT surcharges on the excises. We pay VAT for our water. This is inexcusable and, we suspect, a pretext for enriching the state coffers rather than a legitimate response to unavoidable market conditions.

There’s a realistic limit on how much burden can be piled up on the backs of middle-class taxpayers without that disproportionate burden triggering detrimental chain reactions. Lowering the population’s buying power while prices rise can lead to stagnation and inflation simultaneously. Rising prices spawn higher costs that are passed on to the public and produce further price spirals.

NETANYAHU AND Bank of Israel Governor Stanley Fischer both rightly warn against populism. Yet the current price hikes constitute the perfect breeding ground for populist agitation. It was only to be expected that the Histadrut under Ofer Eini (who may also harbor political ambitions, his denials notwithstanding) would seize the opportunity to issue a general- strike threat. Instead of carping about this, however, Netanyahu could, with proper foresight, have taken preventative action and denied Eini the opportunity to pose as the people’s hero.

As things stand, no matter what he does, Netanyahu has already lost half the fight. By rescinding some of the hikes, he is seen as backtracking and thereby boosts Eini’s prestige. But there’s no real alternative. Anything else would only further fan populist flames.

It’s now a matter of too little, too late. At this point, all that Netanyahu can do is cut his mounting psycho- political losses, mindful that his real battle is to maintain the budget’s integrity in the face of mounting pressure for an inflationary spending-spree.

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