You know who pays the price for hasty decision-making – the faceless middle
class, who pay for everything.
By LIAT COLLINSTel Aviv social justice protest 370(photo credit: Ben Hartman)
I had been expecting increased economic sanctions before a declaration of war – but I was expecting them to be imposed on Iran, not the Israeli middle class. The measures announced by Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz last week were perplexing on many levels, not least because just last month, Netanyahu was still boasting how well the country was weathering the world financial crisis. I guess pride comes before a downfall.Thankfully, Israel’s downfall is nothing like that of our Mediterranean neighbors Greece, Italy and Spain; but given that their financial woes have rocked the economies of even Germany and France, it is not surprising that the waves should reach our shores, too.With the US and the Asian markets still feeling the effects of the crisis of 2008, we should probably be counting our blessings and be grateful that we’ve got through this far without major upheaval.Nonetheless, it’s clear that a lot of people here are already finding it hard to “finish the month,” as Israelis call surviving from one paycheck to the next.In general, the term “middle class” has come to refer to a mind-set rather than a reflection of income levels.I know social workers who earn only marginally more than the poor “clients” whose cases they try to handle (on a decreasing budget).There are many people out there who heard that value added tax is going to be raised by 1 percent, from 16 percent to 17%, and rapidly recalculated their income and expenses – with results that left them going out of their middle-class mind-set.The steps being suggested (although, like the prime minister’s mind and coalition partners, they are subject to change) include the hike in VAT, raising income tax, budget cuts in most ministries, and the already implemented increased tax on cigarettes and beer.Strangely, I know many people who have made a concerted effort to cut down on electricity and water consumption because of the cost, and several fellow passengers on the bus in the morning admit they are taking public transport rather than a private vehicle because of the recent steep hikes in fuel prices, but I have yet to meet the smoker who gave up due to financial considerations rather than for health. If the latest tax increase helps in that way, it won’t just be the country’s coffers that are healthier for it; but I bet the anxiety that followed the announcement of the reform was enough to make smokers light up another cigarette.And the fact that the price of beer went up, but not the cost of hard liquors like vodka and whiskey, seems indicative of the lack of coherence and clear thinking in the latest economic plan. The glass is half empty – and a lot of what you can see is just froth that will soon disappear.The need for action is clear, particularly after credit rating agencies warned that Israel might be downgraded if the budget deficit for 2013 reaches 4%. But, as a Jerusalem Post editorial noted last week, “while it is important for the government to maintain fiscal discipline, one cannot help getting the impression that the recent steps proposed to reduce the budget deficit were the result of hasty decision-making. As former Bank of Israel governor David Klein pointed out, ‘It appears as if somebody is frightened and said that something needs to be done quickly.’” And you know who pays the price when that happens – the faceless middle class, who pay for everything.Steinitz was quoted as pointing out that the steps “are not fun,” and he’s not kidding. But one of the most painful cuts for the general public is not the budget cuts but the “haircuts” granted to the tycoons who have gambled with money they didn’t have – and lost, and expect the taxpayer to pick up the tab.On the one hand, the average citizens with the “average” salary are meant to take a deep breath and tighten their belts (which is admittedly easier to do if you give up cigarettes and beer); on the other, those who are already earning above-average salaries will be least affected by the rise in either VAT or prices in general.If VAT has to be increased, at least the simple healthy pleasures of plentiful fresh fruit and vegetables should be exempt from the decree.Instead of almost across-the-board ministerial budget cuts, perhaps the number of ministers and deputy ministers could be cut? From a financial viewpoint, the government could afford to lose some members (although I’m not so naive as to think that many ministers would be willing to forgo their jobs in times like these).Incidentally, it does not look good – for either of them – that when Defense Minister Ehud Barak (with an eye on future elections) voted against the economic measures, Finance Minister Steinitz returned fire with a NIS 100 million cut from the defense budget.There are other options. Seeing as a vacation in Eilat is already becoming a luxury – in many cases, more expensive than a trip to one of those crisis-hit Greek islands, for example – why not go the whole way, and reintroduce VAT to the far South? It might help pay for the much-needed fence going up along the border to keep out smugglers, terrorists and illegal migrants.One immediate result of the latest moves is to not only provide extra impetus for the social protests, but to spur some people who have previously stayed home this summer (despite the heavy cost of air conditioning), to remember what it was that took them onto the streets last year.If the prime minister and finance minister march clumsily in one direction, and the general public marches chaotically in the other, we’re going to get nowhere. There has to be a better way of kick starting the Start-up Nation that does not require kicking the middle class and their dwindling assets.The writer is editor of The International Jerusalem Post.
