Stock Traders 311.
(photo credit: REUTERS)
So it certainly appears that the way that Finance Minister Yair Lapid will try
and balance the budget is to increase all sorts of taxes. From a 1 percent hike
in VAT, income and corporate taxes, to taxing the sale of property, the only
solution that is being talked about in the media is to raise taxes together with
a bit of spending cuts.
Needless to say, I am quite confident that these
tax increases won’t end up balancing the budget and will potentially cause
damage to the local stock market. So instead of helping the vaunted “middle
class,” they will once again get screwed by the very one promising their
salvation. Kind of ironic! The problem is that if the real engine of any
economy, namely small- and mid-sized businesses, receive another tax increase,
that increased burden will probably end up costing jobs. “Oh c’mon Katsman, they
can afford it, it’s just 1 percent, and the business owners are all rich anyway.
What’s the big deal?” Well the fact is that most small- and mid-sized business
owners are not at all rich and are struggling month to month to make ends meet.
By raising their corporate tax and VAT that they pay by 1% each, their profit
margins may shrink to the level that they aren’t profitable. And remember the
point of business is for the owner to make money.
will have to pay more each time they go shopping, will have less money to shop
with and, to top it off, their hard-earned savings may drop as well. Sounds like
a great solution.
Why am I so skeptical? Because we have been down this
road so many times that it’s clear tax increases don’t work. I have a better
solution” Lower taxes across the board and watch the economy boom. The state’s
coffers will swell and the budget will be balanced. Unfortunately, I feel like a
lone soldier beating a dead horse, constantly pounding the table for tax
But no one seems to be listening, so take it as a given that your
taxes are going up again – for the second time in two years.
your portfolio? Flashback to December 2011, when populism trumped common sense
as a result of that summer’s tent protests. That’s when I wrote about how
devastating the upcoming tax increases would be for the economy. I wrote that
with the hike in capital-gains tax, the government take from this tax would
actually drop, and voila – as I wrote in a column a few months ago, revenue
At the end of 2011, as the tax increases were about to take
effect, I wrote: “The current issue for the Tel Aviv Stock Exchange, which has
dropped significantly this year, is that investors haven’t really been in the
mood to buy local stocks.
Now add to the equation these new measures –
and more to come – that could hurt growth, and you have a recipe for continued
local stock-market weakness. The irony is that this actually is going to hurt
the very people that you are trying to help.
Thanks to caving in to
populism and political survival, it looks like the lower and middle class will
continue to spin their wheels and run in place – and not enjoy any upward
economic mobility anytime soon.”
Sound familiar? It just happens that the
TASE, while posting a gain since that point, has severely underperformed major
global markets. The S&P 500 has produced a 14% higher gain than the TA-100
index. Most regions throughout the world have easily bested the TASE, including
Europe, which has been on the verge of collapse.
So what should you do? I
am no fear-monger, I just like to tell it like it is. Readers of this column know
that I am a big cheerleader when it comes to investing in Israel, but I am also
a realist. We have seen the evidence in Israel that tax increases hurt
Investors should speak with their financial
advisers to analyze whether their Israeli stock exposure should be lowered in
lieu of these tax hikes. While your pension money is mostly stuck in whatever
fund you own, now maybe it’s the time to look at market opportunities around the
globe, especially for your non-pension
Aaron Katsman is a licensed
financial adviser in Israel and