Gov't luxury cars.
(photo credit: REUTERS)
Just when you thought you had a grip on your finances and control over your
income and spending habits – or that you didn’t – the government has now
announced its intention to raise value added tax (VAT) by 1 percent following a
decision by Prime Minister Binyamin Netanyahu and Finance Minister Yuval
Steinitz to bring the proposal to the cabinet on Monday.
As reported by
Globes, each 1% hike in VAT will enrich the government coffers by NIS 4 billion
in revenues. The cabinet will also be asked to make an across-the-board cut for
government ministries totaling NIS 700 million.
What should be worrying
to middle-class citizens is that government sources said the rise in VAT is only
a first step decided upon by Netanyahu as part of a comprehensive plan to raise
The government deficit in 2013 is expected to reach NIS 58b.
compared with the target of NIS 30b., and the government must formulate an
overall plan of tax hikes and budget cuts to reach this target.
state level, this sounds reasonable. After all, every country today must take
extreme measures to avoid falling victim to the global economic crisis. And
Israel has navigated that storm quite admirably so far.
But at a time
when social protests are taking place, specifically against the high cost of
living, it seems absurd that the government will now take the step to undercut
the middle class.
Government spending is sky-high. It employs 30
ministers and nine deputy ministers. The fact that the Finance Ministry has
recently purchased luxury vehicles (NIS 205,000 each) for its cabinet ministers
sends entirely the wrong message and demonstrates extremely poor
As reported in this paper earlier this week, former Kadima
leader Tzipi Livni responded to the announcement that Netanyahu would seek to
raise VAT by saying that raising VAT as if there were no socioeconomic protest
would harm the middle class and the weak.
“Instead of courageously
changing his priorities, Netanyahu is letting Israel enter tough economic times
with a bloated government with sectarian political priorities,” she
Labor Party chairwoman Shelly Yechimovich responded to the
announcement by saying that the citizens of Israel will pay dearly for
According to Yechimovich, the prime minister is “disassembling and
crushing the middle classes while creating dangerous gaps between the rich and
SO HOW does Israel fare when compared to other countries?
According to the OECD, “in Israel, the average person’s financial wealth is
47,750 USD per year, more than the OECD average of 36,238 USD.” This is not
necessarily accurate, since the average household net-adjusted disposable income
is lower than the OECD average of $22,387. Israelis earn $31,155 per year on
average, lower than the OECD average of $34,033.
And with high defense
expenditure at 6.8% of the GDP, according to the Stockholm International Peace
Research Institute’s 2012 report, Israel spends less on its citizens than the
Given the (unnecessary) reality here and the fact that
embarrassingly low salaries, low expendable income and high taxes are the norm,
it is surprising that just a month ago at a press conference in Jerusalem with
OECD Secretary General Angel Gurria, Netanyahu said that “Israel up to now has
done better than most of the OECD countries because... we didn’t squeeze taxes
sky-high because we realized we’d get more tax revenues from lower tax rates
rather than the opposite.”
He continued, “Social justice cannot be
attained if there is no growth. Growth occurs only if... you don’t tax the most
productive bodies in a manner that makes it more worthwhile not to work – not
worthwhile to work, not worthwhile to invest, not worthwhile to earn, and then
the government doesn’t get taxes.”
Has the country’s economic situation
changed so drastically in the last month that the government must place extra
strain on middle- class families? Isn’t it tough enough already? Comedian George
Carlin described economic and social classes this way: “The upper class keeps
all of the money, pays none of the taxes.
The middle class pays all of
the taxes, does all of the work. The poor are there just to scare the **** out
of the middle class – keep them showing up at those jobs.”
The fact is,
to reduce the strain on the middle class and create more revenue, the government
needs to make more of an effort to discover new ways to accomplish this. It must
continue breaking up monopolies such as the ports and the Israel Electric
Corporation, to name two examples.
It can charge a higher tax on luxury
vehicles and a lower tax on family cars. It can start charging VAT in Eilat. It
can tackle the black market.
There must be numerous other ways to reduce
the strain on middle-class families. Yesterday was the time to find and