Finance Minister Yair Lapid addresses the INSS conference in Tel Aviv, January 29, 2014..
It’s doubtless a source of comfort for the citizenry to hear our finance minister pledge in ostensible earnestness not to increase taxes at all during 2015. His logic is incontrovertible. Yair Lapid can take pride in his apparent benevolence and he can in so doing score hefty public-relations points.
He hasn’t, of course, divulged how he’ll cover the shortfall, but we can easily clear some of the mystery away. The vital clue is that while progressive direct taxes remain stable, regressive indirect taxes don’t.
When Lapid assures us that he won’t add to our tax burden, he obviously speaks of taxes the Treasury collects – income and value-added taxes. But that’s not nearly the full extent of our load. Each year, we fork over ever greater portions of our earnings to local taxes and these are about to spiral yet again – with Lapid’s avid encouragement. The idea is that while we may not pay more to the single largest revenuer, we’d shell out exorbitantly more to our municipality or local council, whose greatest source of income is property tax (“arnona”).
This works well for Lapid – the more the municipalities rake in, the less he needs to subsidize them from the state budget. The natural, undisguised aim of the Treasury is always to limit its contributions to local authorities and it’s the undisguised aim of local authorities to enlarge their revenues.
Both sides, therefore, can only gain from sticking ordinary households and businesses with the tab. Hence, everyone wins – except the taxpayers.
No less than 92 municipalities have already applied for permission to raise taxes in 2015. An elastic clause automatically adjusts city rates with inflation but when inflation is too low, it’s replaced by requests for what are euphemistically dubbed “exceptional increases.”
Exasperatingly, “exceptions” become inordinately common. This year nearly 70 percent of all municipal requests for “exceptional” tax hikes were approved – including from the best heeled cities in the country that boast impressive surpluses.
Local taxation tends to be erratic. Often it’s levied arbitrarily without transparency and scant supervision on both households and businesses. Large enterprises saddle consumers with higher overhead costs, while small businesses are strangled.
Taxes on residences are based on the size of housing units, a criterion that fails to account for income and is particularly harsh towards both the elderly and young couples. Moreover, it appears that property sizes mutate occasionally according to the whims of local administrations that fiddle with measurement criteria.
Such antics promote the pretense that taxes aren’t going up. But local taxes are still taxes, and they contribute massively to the cost of living index. 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 can lead to both stagnation and inflation simultaneously. Rising prices spawn higher costs that are passed onto the public and produce further price spirals.
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. This is the brief of political leaders, elected to steer officialdom in given directions.
The general public isn’t an aggregate of fools. We all read Lapid’s lips. The fact that he might not raise income tax is no consolation.
There’s no householder who doesn’t feel the pinch. At a time when most wages have essentially stayed unchanged, municipal rates go through the roof. Water prices stay unjustifiably high, as if this were a dispensable extravagance, while electricity costs skyrocket. Raising such indirect levies during periods of stunted economic growth is nothing short of daft.
The cities cite higher expenses as mandating expected hikes, but city residents find themselves liable for municipal squandering. We are, for instance, bankrolling higher salaries for municipal employees and perks for elected officials.
In given cities this can amount to egregious outlays.
It might be a good idea for the state comptroller to turn his attention to what may underlie municipal tax intricacies.
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