In the summer of 2011, the biggest wave of protests in the history of the
country swept through Israel.
There were demonstrations and tent cities
from Kiryat Shmona on the Lebanese border to Beersheba in the Negev, all calling
for one thing: the right of ordinary, hardworking Israelis to be able to make
Enough is enough, they declared.
We’ve fought in wars
for this country, we’ve worked hard all our lives, and a few millionaire tycoons
are making larger profits than ever while we’re going into debt and struggling
to pay bills that were once much more affordable.
Something about the
whole situation seemed fundamentally unjust, which is why the main slogan of the
protesters caught on so naturally: The people demand social justice.
immediate outcome of the protests was unfortunately negligible.
Minister Binyamin Netanyahu refused to implement any of the demands of the
Social Justice Forum, a confederation of all the main organizing bodies in the
social protest movement.
He instead created the Trajtenberg Committee for
Socioeconomic Change, restricted its authority so that it could offer only
cosmetic changes to a fundamentally dysfunctional system, and then proceeded to
implement only a partial list of its already inadequate suggestions.
protest movement ended with popular support from about 80 percent of Israelis.
By October of that year, with his poll numbers plummeting, Netanyahu came up
with a plan to resuscitate his political career: He struck a deal with Hamas to
release 1,027 Palestinian prisoners in exchange for kidnapped IDF soldier Gilad
Schalit in a move that blatantly contradicted every position he had ever stated
on the matter. As Netanyahu’s top negotiator later shamelessly admitted, the
Schalit deal was at least partially motivated by a desire to distract the
country from our anger at the prime minister following his indifference to the
struggle for social justice.
A missing picture Though the protest
movement captured support from the public and sympathy from local media, it
failed in one crucial respect: showing Israelis where the essence of the problem
There are two fundamental issues with the Israeli economy, both of
which the public understands very little about, largely because the politicians
and economists responsible for them don’t particularly want the average Israeli
First, the amount of public spending as a percentage of
GDP has been dramatically reduced over the past two decades, weakening services
on which the lower and middle classes depend, like education and healthcare. The
Total Expenditures Law has dictated for over a decade that government spending
can increase at a maximum of 1.7% to 2.6% a year. But the economy itself has
grown roughly 5% a year, which means the government’s role in the economy has
shrunk. Public spending was 50.4% of GDP as recently as 2002; this year, it will
be about 40.1%. Things become clearer when one takes away defense spending: The country’s level of
civilian spending is lower than all developed countries besides South Korea and
the United States as of 2009.
Why is this bad? Israel, despite the
limited resources of its early decades, once had a vibrant public education
system, high-quality healthcare for all, and all the other trappings of a
successful welfare state. A government cannot maintain these vital public
services – all of which were popular with the Israeli public – with the
third-lowest level of civilian spending in the developed world. Despite the
rapid growth of our economy over the last two decades, the country’s teachers,
doctors and social workers are among the lowest paid. As a result, the country’s
education system, which determines more than anything else the level of equality
or inequality in society, has experienced a dramatic decline over the past two
Second, the way taxes are paid has become increasingly
regressive, requiring that the poor and middle class pay an increasingly larger
There are two main taxes on individuals and families around the
world: income tax and value-added tax (VAT), also known as sales tax. Income
tax, in the vast majority of developed countries, is progressive: The richer you
are, the higher the percentage of your income you pay. VAT, on the other hand,
is more regressive: Every person has to pay the same percentage, whether they’re
a millionaire or a janitor. Over Netanyahu’s four-plus years in office, he’s
tried to reduce the deficit. Normally he cuts public services, but sometimes he
opts to raise taxes. When he does, it’s always the regressive VAT that goes up,
from 15.5% to 16.5%, then to 17%, and now to 18%. The corporate tax rate, which
he successfully cut from 36% to to 24% with plans he created as finance minister
almost a decade ago, remains near its historical low, while VAT has returned to
its historical high.
What we understand when we zoom out and look at the
big picture is exactly why the average Israeli is upset: They’re paying more and
more of the burden for a government that helps them less and
Consequently inequality has grown dramatically in the country over
this time. The GINI Index is the world’s leading measure of economic parity.
Israel’s GINI score was 35.5 in 2001 but was 39.2 by 2008 – higher (more
unequal) than any country in Western Europe, and worse than all OECD countries
besides the United States, Mexico and Chile. The OECD announced recently that
Israel has now replaced Mexico as the country with the highest poverty rate at
21%, up from 14% in 1995. Since the 1980s, Israel has experienced a larger
increase in poverty than any other OECD country, even though its economy has
quadrupled in size.
A love-hate relationship with deficits The summer of
2011 did convince Israelis that our situation was unfair and that the people
could actually accomplish something if we took to the streets.
didn’t successfully educate the public about the core of the problem: neoliberal
policies aimed at shrinking vital government services and making the poor and
the middle class pay more.
This January we had our first elections since
the 2011 protest movement. Netanyahu stayed in office, but the real story of the
election was former journalist and media wonderboy Yair Lapid. His brand new
Yesh Atid party harnessed the yearning for change that came from the social
protest, and won 19 seats, becoming the second-largest party in the Knesset.
Among his prominent campaign slogans were “Where’s the money?” and “We came to
change things.” He gave clear proposals about drafting the ultra-Orthodox, but
left his economic policies vague, offering promises to finally represent
Lapid is now finance minister, the public
official primarily responsible for setting the national budget.
announced his initial budget plans last month, and they were something out of
Netanyahu’s neoliberal fantasies: NIS 30 billion of budget cuts and NIS 9b. of
It’s odd that the main issue he chose to tackle was reducing
the deficit. Deficits are bad when they build debts that grow compared to GDP,
which ultimately leads to economic collapse (just look at Greece).
the United States and most of Europe, however, Israel’s overall debt as a
percentage of its GDP has actually shrunk over the past decade. Economies don’t
have debt crises when that ratio is shrinking, so it seems odd that our finance
minister and prime minister would fixate on the deficit.
Yet this is the
heart of neoliberal economics: using deficits as a pretext for implementing
additional free market policies, slashing social services and improving
conditions for corporations and the wealthy. It’s called starving the beast, and
it was was perfected by the Republican Party. The plan has three phases: First
you cut taxes in order to create a deficit, then you complain that the deficit
is too big and then you blame social programs and cut their funding to solve the
deficit crisis you’ve manufactured.
The plan has been executed flawlessly
in the United States over the past 12 years. Republican George W. Bush came into
the presidency with the largest budget surplus in American history. He then
issued massive tax cuts – primarily to the wealthy – even while launching
incredibly costly wars in Iraq and Afghanistan. Not surprisingly, this created
the largest budget deficit in American history. He justified his tax cuts, which
turned the surplus into a deficit even before September 11, by saying that they
would place a “fiscal straitjacket” on Congress. As Nobel Laureate and Princeton
economist Paul Krugman pointed out in 2003, Republicans and anti-tax activists
were admitting that the goal of tax cuts “is reducing the size and scope of
government by draining its lifeblood.” Now, despite creating the modern deficit,
the Republican Party is “outraged” by that deficit.
The party ardently
refuses to allow a reversal of the Bush-era tax cuts that caused the deficit in
the first place, and instead focuses on what their goal was all along: reducing
Netanyahu’s done the same thing, although he’s taken
a slightly more elaborate path. Back when he served as finance minister in 2004,
he cut social services and fired enough government employees that the country
was actually slated to have a budget surplus. But that never actually happened,
because he issued massive tax cuts instead (mainly to corporations) over
objections from the Bank of Israel that the money ought to be used to help
reduce the country’s debt.
So when he now talks about the urgency of
reducing the deficit and paying off our debt as if those are his real economic
priorities, we can safely ignore his doublespeak. Netanyahu’s policies are the
same whether there’s a deficit or a surplus: reduce the government, cut social
services and give tax cuts primarily to corporations (in a recession) or raise
taxes primarily on the average Israeli (if there’s growth). For the prime
minister, a deficit is just a convenient method of justifying this
redistribution of wealth.
Lapid’s new budget: More of the same Lapid’s
budget proposals show that he feels the same way. He prefers spending cuts to
tax increases by a ratio of 3:1, and when he does have to increase taxes, he
prefers that the wealthy feel it as little as possible. His proposed budget cuts
are exactly those that will hit average Israelis hardest: cutting money from
public transportation; lowering the salaries for teachers, social workers and
other government employees; and taking away free dental care for children under
12 and free after-school programs up to age nine.
The tax hikes he
advocates have again been disproportionately regressive. Budget negotiations are
still under way, but his main tax proposals have been increasing VAT from 17% to
18%, increasing income tax by 1.5% across the board and adding VAT to fruit and
vegetables. The only significant tax increase that’s somewhat progressive is his
1% planned increase in corporate taxes. That, unfortunately, is peanuts
considering the corporate tax rate was cut by 12% between 2004 and 2011 thanks
to a few plans coined by none other than finance minister Netanyahu in 2004 and
2005. It is especially appalling that Israelis will need to pay more for milk
and bread, while Teva Pharmaceuticals, the world’s largest generic drug
manufacturer, continues to pay a corporate tax rate of just 0.3%.
budget is more of the same: weakening services for the average Israeli and
asking them to pay more for it so that the rich don’t have to. The Finance
Ministry itself has estimated that the bottom 10% of Israeli households will see
an 8.4% dent in their household budget from these austerity measures, while the
top 10% will lose a mere 1.6%.
But Lapid, following the neoliberal
playbook, tries to hide the substance of his agenda from the public.
introduction to his new budget cynically declares, “This is a budget of hope....
It creates a sense of equality and is aimed at the good of the working person,
the fruit of whose labor upholds and sustains the Israeli economy.”
the press conference announcing his budget proposal, his spokeswoman reiterated
the same false claim: “This framework reflects the vision of Yair Lapid, who
puts the working man in the center.” The conference focused on a new 25% luxury
tax on items like extravagant homes and cars.
That tax will raise NIS 30
million, representing less than a tenth of a percent of the country’s deficit.
The NIS 30b. cuts and the NIS 9b. tax hikes – all of which disproportionately
affect working class Israelis – were barely mentioned. Apparently the finance
minister hoped no one would notice the harsh new reality, or the colossal gap
between his rhetoric and his policies.
Lapid has played us, the Israeli
people, for suckers.
He promised change and deftly rode the revolutionary
fervor pulsing through the country to stunning electoral success. At its
essence, however, his freemarket policies are almost identical to
His new budget reflects these skewed priorities and will
inevitably lead to increased poverty and inequality in a state that was once
based on ideals and dreams.
He fooled us once. But his true colors are
now out in the open, and he’ll have a hard time fooling us again. If there’s one
thing you can say about Israelis, it’s that we hate being suckers. ■ The writer
immigrated from Canada to Israel two years ago and joined Kvutzot Am, a network
of Habonim Dror graduates working on social justice projects in Israel. He
recently completed his IDF service and lives on an urban kibbutz in Haifa.