Lapid does about face on corporate tax breaks

Finance minister lays out plans for bolstering Israeli innovation; Yacimovich pans Lapid's address, calls him a "failure".

FM Lapid at Eilat conference 370 (photo credit: Yossi Zamir)
FM Lapid at Eilat conference 370
(photo credit: Yossi Zamir)
Finance Minister Yair Lapid did a 180 on his stance on corporate tax breaks on Thursday, arguing that they were crucial for making Israel a competitive destination for global companies.
“We have another tool, called “tax benefits,” and all the populist shouting in the world won’t make any difference: We are going to use it,” Lapid said at the Israel Democracy Institute’s Eli Hurvitz conference on economy and society.
In 2012, he noted, Intel chose to build a 1 billion euro plant in Ireland instead of Israel because it got better tax breaks there, depriving Israel of jobs, development in the periphery, and added tax revenues from workers.
“We need to oversee the tax benefits for large companies, we need to create better mechanisms for checking them and increasing efficiency; but we must continue to use tax benefits to continue bringing Intel, Cisco, Siemens and Google to Israel, because that’s also what makes us innovative – our relationship with the leading technology companies in the world,” he said.
The position is a departure from the stringent stance he took against corporate tax breaks in May, when the Finance Ministry report found that the four biggest companies – Teva Pharmaceutical Industries, Intel Israel, Israel Chemicals and Check Point Software Technologies – received 70 percent of all corporate tax benefits in 2010. The NIS 4b. in breaks, given through the Law for the Encouragement of Capital Investment, reduced their average effective tax rates to about 3%.
At the time, Lapid pulled then-Teva CEO Jeremy Levin to a meeting on the issue, at which he told Levin, “It is time to change the rules of the game on non-taxable income of international companies and on tax benefits.”
He went so far as to raise taxes on eligible companies by 2.5-3%.
When asked to explain the change of heart, Lapid’s spokeswoman said he did not change his view, but rather wanted to ensure that tax benefits did not exist for their own sake, but went toward job creation.
During the remainder of the speech, Lapid laid out his view on how to grow Israel as an innovative economy.
Israel’s innovation springs from three sources, he said: Its diverse migrant population, the IDF, which selects and trains Israel’s youth in hi-tech fields, and “something in our DNA.”
To support the latter claim, Lapid name-dropped Freud, Einstein, Jesus, Kafka and Bob Dylan as examples of influential Jews.
To bolster that innovative base, he continued, Israel should focus on four areas: infrastructure, education, human capital and available capital.
To those ends, Lapid called for building a 4G wireless network and consolidating the government’s technological bodies into one.
American-style community colleges could help people gain marketable skills, while government-sponsored training programs could help integrate ultra-Orthodox Jews, Arab women and workers over the age of 50 into the workforce, he said.
Instead of Israeli companies running to NASDAQ in New York to raise capital, as Israel’s Wix did just a day earlier, Lapid called for broad deregulation, and encouraged institutional investors to channel funds toward hitech.
The bottom line, Lapid said, was that Israelis could improve their quality of life through innovation. “If you do it enough times, it becomes a sort of song that gets stuck in your brain,” he said.
Opposition leader Shelly Yacimovich panned Lapid’s address in a speech to the Manufacturers Association of Israel, calling him a failure.
“This is the finance minister’s plan? Is there no limit to his empty words and badspiritedness? Is repeating a song so we remember it a replacement for an economic plan?” she asked.
Yacimovich said Lapid failed “not only as finance minister but also as a songwriter” and that he was “simply mocking” the people. “In the last budget, taxes were only on the working people and on small and medium businesses,” she said.
MK Itzik Shmuly (Labor), who attended the conference, called Lapid a “world champion in words, but that is not reflected in the numbers.”
“Only three months ago, Lapid submitted a budget that will crush the middle class more and more and hurt young couples, and all his nice talk won’t cover that now. We can’t lower the hammer on young people’s heads, and then praise them a moment before they collapse,” Shmuly said.