Where will the money come from?

One place to consider is Israel’s vast black market economy.

By
September 4, 2011 23:06
4 minute read.
March of the million in Jerusalem

March of the million Jerusalem 311. (photo credit: Marc Israel Sellem)

 
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One of the central issues in dealing with the numerous demands of the social demonstrators is the cost of fulfilling them. There are basically two potential sources of money to cover the expense: one is to take the money from other items in the budget, and the other is to turn to new sources of untapped revenue.

One of the stipulations of the Trachtenberg team’s terms of reference was that there should be no deviations from the budget framework. This requires that every proposal made by the Trachtenberg panel regarding new expenditure be accompanied by a proposal as to what item in the current budget should be cut.

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On the ideological level, this is simple. Left-wing, secular peaceniks will say that the cuts should be made in the budgets earmarked for the settlements in Judea and Samaria, and from welfare payments made to haredim who do not serve in the IDF and choose not to work. Radical right-wingers will recommend cuts in the budgets earmarked for the country’s Arab citizens who refuse to do national service and to swear allegiance to the Jewish state.

Extreme neo-liberals will recommend cuts in all welfare payments, and that the government should privatize whatever can be privatized while cutting the budget for social services.

In our complicated socio-political reality, the realization of most of these proposals is not feasible, and in some cases realizing them would actually cost much more than what would be saved, at least in the short run. For example, stopping investments in the territories, especially if this is part of a political process involving the dismantling of settlements, will certainly result in vast expenditures on the relocation of settlers. Therefore, irrespective of one’s ideological priorities, an immediate major change in priorities is neither realistic, nor a solution to the problem of where the money to realize the “social justice” demonstrators’ demands will come from.

THOSE WHO speak about creating new sources of income usually mention raising taxes (such as the companies’ tax) or creating taxes that currently do not exist (such as an inheritance tax). However, another source that is usually not mentioned – or if it is, is mentioned only fleetingly – is an attack on the black market (or shadow) economy – in other words, unregistered economic activity, on the income from which no taxes or levies are collected.

A black market economy exists in all states.

According to a study published last year on behalf of the World Bank, the black market economy in Israel was estimated in 2010 at 21.9% of its GDP (its GDP in 2010 was NIS 813.6 billion, so the black economy last year was around NIS 178b.).


This percentage has remained pretty stable in the last decade. Out of 162 states examined in the World Bank study, Israel is in 35th place, with most OECD countries (the main exceptions being Belgium, Portugal, Spain, Italy and Greece) having smaller black economies. In Switzerland and the United States, the black economy is estimated at only 8.6% of GDP.

From time to time, the Israeli tax authorities, accompanied by policemen, carry out unannounced tax collection operations in pre-selected locations, which reveal businesses that fail to report to the authorities altogether, or submit false reports.

The problem is that this activity is sporadic and almost invariably reaches “small fry.” Occasionally we hear of popular singers (usually of the so-called Mediterranean genre) having their account books examined and being found to have failed to report their incomes fully. Tycoons are hardly ever earmarked for such investigations.

The problem with trying to uncover and tax unreported income is that much of the black market economy is based on illegal activities, such as women trafficing, illegal gambling, lending at exorbitant interest rates, trade in stolen goods, etc. Taxing income from such activities is unthinkable, since this would involve their legitimization.

We do not know what percentage of the unreported income results from activities that are á priori legal, but we are probably speaking of tens of billions of shekels’ worth every year, spread among all sections of the population. To tap into this money is no simply matter, and could involve spending hundreds of millions of shekels on additional manpower and organization (the manpower requirements include more undercover investigators, professional tax collecting staff, and policemen). The government would have to decide that the battle against the black market economy was indeed a cause worth investing in.

The advantage of such action is that it is not controversial from an ideological point of view, even though those who stand to lose from it will certainly resist. It is highly recommended that the leaders of the protest adopt this option into their agenda.

The writer is a member of the Labor Party, and is currently engaged in research and lecturing on the Knesset.

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