Not just another budget

Working-class people always foot the bills. At least in this budget we’re given credit for it

By SHLOMO MAITAL
I downloaded the 290-page State Budget for 2013-14 in the early morning hours of May 7, shortly after it was released to the press, and clicked on “print.” What does the Finance Ministry have planned for us, I wondered.
“You aren’t serious!” my printer groaned.
“You’re not going to print the whole thing! What for? You’ll die of boredom by page 6.
Please, have a heart for all those trees.”
I wasn’t accustomed to my printer being insubordinate. “Print it!” I commanded. “My readers and I need to know what this budget will cost us. I’m afraid it’s going to be plenty.”
Reluctantly, my printer began to spew pages, and I eagerly began reading them.
“Wow,” I said out loud. “This is not just another budget. Do I detect the writing style of Finance Minister Yair Lapid himself in the opening pages? Listen to this passage, printer: ‘The state budget does not deal with just numbers, cuts, taxes and reforms. A budget with a real worldview behind it will become a guide, a tool that defines priorities, the designer of a humane society… On the one hand, the budget includes the biggest spending cut in Israel’s history… On the other, it is a budget of hope!’ Somewhere in those 290 pages is the vision of a humane society! And hope! Keep printing!” “I don’t understand how this budget process works,” the printer said, as it squirted tiny jets of ink onto page 54.
“It’s simple,” I said. “This document is just a proposal. The government will debate it on May 13 and 14. Changes will be made.
The real budget, those stacks of books piled on Knesset members’ desks as high as Kilimanjaro, must be tabled by June 10. The Knesset must pass the 2013-14 budget by July 31, or, by law, elections must be called.”
Page 62 emerged with the title, “Increasing Competition and Reducing the Cost of Living.” My printer moaned. “Look,” it said, “just tell me what it says, in a few words. I’m exhausted and I still have 230 more pages to go!” “Simple,” I said. “Here is the crux of it: ‘During the past two years, the government accumulated especially large spending obligations.’ Government spending grew in real terms by 5 percent in 2013, more than in any other developed OECD nation. Why? My guess, printer, is the social protests and the January elections. And complacency about how Israel’s economy was growing much faster in 2010 (5 percent) and in 2011 (4.6 percent) than in other countries.
Unemployment in 2012 was the lowest it’s been in 30 years. But in 2012, growth slowed to 3.1 percent and, as a result, tax revenues were much less than predicted. The result? A very big hole in the government’s pockets.
This budget tries to fix the hole.”
“How?” asked the printer, furiously spewing out pages.
“Very cautiously,” I explained. “Government spending for 2013 will be 304.5 billion shekels (about $85.5 billion). That’s actually 7 percent more than in 2012! And in 2014, spending will total NIS 307.9 billion ($86.5 billion), up by 3.4 percent over 2013.”
“So, what’s all this talk about painful budget cuts and higher taxes?” the printer wondered.
“Simple,” I said. “For the remainder of 2013, spending will be NIS 7 billion less than it would have been if no action was taken.
For 2014, another NIS 18 billion will be cut.
For 2013-14, there will be a NIS 13.4 billion tax hike. All in all, the budget will slash the government deficit by nearly NIS 40 billion to bring it down to 4.65 percent of GDP in 2013, and 3 percent of GDP by 2014.”
“Who cares about the deficit?” said the printer, dumping out pages faster than I could collect them.
“We all should,” I explained. “A credit rating agency, S&P, downgraded Israel’s credit rating to A+. That means the government may have to pay higher interest on its borrowing, and it means that investors may be more wary before sending their money to Israel. They did this apparently because Finance Minister Lapid retreated.”
“Retreated? From what?” the printer asked.
“From deep austerity,” I said. “The Finance Ministry originally planned deep budget cuts already in 2013. Now, they’re making them more gradual, deferring most of the painful medicine to 2014. That may not be a bad idea. Europe tried austerity and it just made things worse. Israel’s public debt is about three-quarters of its GDP, lower than the US.
Our budget deficit is smaller, too. But for the past four years in a row, the budget deficit has been bigger than planned; this worries foreign investors.”
“All I want to know,” the printer said, zipping past page 200, “is will my ink cartridges cost more?” “Yes,” I said. “But before I tell you how and why, listen to this poetry, on page 7: ‘We believe that the working man is the core of society. The Midrash says …the Heavenly Presence did not appear until work was done.
Without the working man, there is no way to help the poor.’” “Hmmph,” the printer said. “I can guess what comes next. The working man is going to pay the bills as always.”
“Right on,” I said. “And here is how.
Cigarettes already went up by NIS 3 per pack in added taxes. In 2014, income tax rates will rise by 1.5 percent for everyone.
Value added tax goes up by 1 percent in June, to 18 percent. Child allowances will be cut by NIS 140 per child – not exactly a design for a humane society. Housewives will begin paying National Insurance and health insurance. These will all affect ordinary working people, the ‘core of society.’ And why is this so? Because the poor don’t pay income tax; in fact, they receive negative income tax, and the rich, by definition, are too few in number to generate much revenue, however much we tax them. That leaves us with the middle class, which pays the bills no matter what.”
“Isn’t there something in the budget that soaks the rich?” the printer asked, firing out the final page, page 290, with a sigh.
“Symbolic,” I explained. “They will pay higher taxes on luxury cars. Purely symbolic.”
“What about defense spending?” asked the printer astutely. “I have about 10,000 cousins in the Ministry of Defense.”
The budget proposal calls for a big defensespending cut, NIS 4 billion,” I explained.
“But don’t count on it.”
“Why not?” asked the printer.
“Prime Minister Netanyahu is in China,” I said. “He’s hinting that he opposes defense cuts and some of the more draconian civilian spending cuts. Keep in mind, election campaigning has already begun. Polls show Lapid and Netanyahu are neck and neck, if there were elections tomorrow. So Netanyahu will try to undercut his finance minister by appearing to champion the middle class more than Mr. Pro Middle Class himself – even though Netanyahu himself imposed tough austerity budgets in 2003-5 when he was finance minister in Ariel Sharon’s government, and in fact probably built the fiscal foundations for Israel’s prosperity and growth in 2005-12 by doing so. Lapid and Netanyahu are close allies and fierce rivals at one and the same time. The tango they do would challenge even Arthur Murray.”
“I’m shutting down,” the printer whined, as it cleaned its weary ink jets. “It sounds like just another budget to me.”
It’s not just another budget,” I said. “It has some real cool stuff in it – like math and English in ultra-Orthodox schools, bigger grants to poorer municipalities and higher taxes on big companies. When was the last time you heard a finance minister say things like this on Facebook: ‘Look at the budget as a whole! It’s true, the working class is hurt, in the short run; but the budget is part of an overall plan to cut the cost of living, create jobs, lower the price of housing and water, equalize the burdens and improve the lives of working people. In hard times, there are always two choices – to decide you are all alone, or to get out of trouble together. We’ll get out of this [mess] together, and we’ll be better off than we were when the problem began.’” “You’re naïve,” the printer said, and went into Power Save mode.
“We working-class people always foot the bills,” I explained. “At least in this budget we’re given credit for it. That’s worth something, isn’t it? Lapid’s preface and Facebook page have some of the loveliest prose ever seen in a budget proposal. It’s worth every one of those 40 billion shekels that it’s costing us!” 
Shlomo Maital is a senior research fellow at the S. Neaman Institute, Technion.


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