Politicians can decry Teva layoffs, but why did they give billions in tax breaks?

Teva has benefited from an estimated NIS 22 billion ($6.2b.) in tax breaks and subsidies from 2006 until today.

December 15, 2017 05:34
2 minute read.
Politicians can decry Teva layoffs, but why did they give billions in tax breaks?

People protest outside the Teva Pharmaceutical Industries plant in Jerusalem December 14, 2017.. (photo credit: REUTERS)

With news of industry giant Teva Pharmaceuticals laying off a quarter of all its Israeli employees – some 1,750 people – politicians from across the political spectrum slammed the company.

Prime Minister Benjamin Netanyahu called upon Teva CEO Kare Schultz – the company’s first non-Jewish CEO who started last month – to try to reduce the number of layoffs.

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Parliamentarians ranging from socialist MK Shelly Yacimovich (Labor) to more business-friendly members of the coalition, like Economy Minister Eli Cohen (Kulanu), railed against the move, which would lay off highly skilled Israelis across central Israel and shutter factories in the northern Galilee and southern Negev desert.

Yet, while politicians decry the layoffs at Teva – which come as a result of poor management and massive debt-load undertakings for ill-advised acquisitions – they may be responsible.

Teva has benefited from an estimated NIS 22 billion ($6.2b.) in tax breaks and subsidies from 2006 until today, a spokesperson for the Histadrut labor federation told The Jerusalem Post, and it seems like none of the aid came with strings attached.

In other words, the government agreed to subsidize a private company to the tune of billions of dollars without asking for any pledges or commitments in return.

“It was a mistake,” said pharmaceutical industry analyst Sabina Levy from Leader Capital Markets. “Like Teva’s previous management, the government didn’t assume that the company would find itself in such a poor situation and that such a black day would come. The government... didn’t look forward and they didn’t [prepare for] the worst-case scenario ahead.”

While it may be problematic for politicians to interfere in private business decisions, the magnitude of the layoffs puts pressure on MKs to speak out. Yet, they missed their chance to initiate a quid pro quo.

And now, Teva can say that they are neither breaking promises nor abridging commitments by its implementation of a painful streamlining operation meant to restore the company to profitability.

Furthermore, too much government pressure now could reduce incentives for Teva to keep operations within the relatively expensive Israeli workforce compared to moving to Eastern European locales, which offer a cheaper labor pool.

“If the politicians and government start to try to intervene and stop the Teva from implementing [its streamlining] plan, the company will have less incentive to keep operations in Israel,” said Levy. “It’s expensive, it’s harder to make business, you have government on your neck – why stay here?”

Investors were clearly buoyed by the announced streamlining measures and Teva’s shares were up more than 13% as of closing time on Thursday at the Tel Aviv Stock Exchange.

Although Teva’s revenue and exports are worth more than what its tax bill suggests, it isn’t the only multinational corporation that is heavily subsidized by the Israeli government. Intel is another example, and in return, the computer chip-maker operates factories in Israel’s periphery.

The next time the government decides to subsidize a major corporation for years on end, it might be smart to ask for a tangible commitment or two. Likewise, if the government decides to offer Teva more carrots, further tax breaks in order to reduce the layoffs, let’s hope it receives some sort of a pledge in return.

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