Think About It: Where’s the money?

We all receive services from plumbers, electricians, etc., who are willing to charge us less if we agree to forgo the documentation.

Finance Minister Yuval Steinitz 370 (photo credit: Marc Israel Sellem)
Finance Minister Yuval Steinitz 370
(photo credit: Marc Israel Sellem)
It was recently reported that Finance Minister Yuval Steinitz has promised the University Center in Ariel NIS 100 million for the next academic year, and this toward its being recognized as a full-fledged university.
I do not intend to deal in this article with the question of whether Israel needs an eighth government-subsidized university, and whether if it does this university should be outside the Green Line. Since the government is more than likely to get this allocation of NIS 100m. approved by the Knesset, the only remaining question is where the money will come from, since Education Minister Gideon Sa’ar has announced that it will not come from the budget already allocated to the universities.
The three accepted options are that the sum will be taken from some other budgetary item, that it will come from increased government tax revenue, or that it will contribute to increasing the budget deficit.
However there is another way, and it could be achieved by utilizing the funds to employ an additional 400 (or more) professional tax and debt collectors that would increase government revenue by tens of billions of shekels, which could in turn be used to pay for all sorts of projects.
How would 400 additional tax and debt collectors achieve this result? First of all, because Israel has a vast “Black Economy,” estimated at close to NIS 200 billion per annum (or close to a quarter of Israel’s GDP), at least part of which could be brought into the reported economy through a more effective tax collecting regime.
Secondly, as recently reported, unpaid debts by individuals and authorities to ministries and state agencies for services rendered are estimated at around NIS 125 billion.
THE BLACK Economy, or “shadow economy” as it is official referred to by the World Bank, is that part of the economy that is not reported to the tax authorities, and which consequently remains untaxed. A Shadow Economy exists in all states, but in Israel it is especially large. This economy includes illegal activities such as trafficking in women, the drug trade and illegal gambling, which the state could not possibly tax without legalizing them.
However, much of the shadow economy consists of economic activities that are in themselves legal, but are provided without any documentation such as bills or receipts, and are not reported to the authorities for tax purposes. We all receive services from plumbers, electricians, handymen etc., who are willing to charge us less if we agree to forgo the documentation. How many of us refuse such an offer? In addition, many businessmen and self-employed professionals submit reports to the tax authorities, but leave out large chunks of income. This is a cultural phenomenon as much as an economic one.
However, from time to time we are informed that the tax authorities have carried out a “raid” on businesses in a certain geographic area, or trade, and that tens of millions of shekels were collected.
Certainly the allocation of additional manpower – both tax collectors and police – would enable a more systematic war against the Shadow Economy.
AS TO the uncollected debts to government ministries and agencies, it is admitted that around NIS 60b. of the NIS 125b. are “lost debts” due to the statute of limitations. But even the remainder is a serious sum, equal to about 18 percent of the 2012 budget.
What is this incredible sum made up of? The Marker cited several examples, including NIS 2.9b. in tax arrears that the tax authorities have failed to collect in the first half of 2012. NIS 1.8b. is the debt of the health funds to the Health Ministry, NIS 1.1b. is the debts of individuals and public bodies to the Water Authority, and NIS 1b.
is fines imposed by the police for traffic violations and fines imposed by the courts that have not been collected.
Once again, the allocation of additional manpower – in this case debt collectors and police – could help reduce this debt significantly.
If what has to be done is so obvious, why isn’t anything being done? Though there are certainly technical difficulties involved, the main reason is lack of determination.
While we lack leaders whose goal is simply to introduce improvements and greater efficiency into the system for their own sake, the main goal of most of our leaders is to get reelected.
Thus, promising the University Center in Ariel NIS 100m. is not only much simpler than tackling the shadow economy and uncollected debts, it has greater chances of gaining votes for the Likud than does taking actions that, while greatly improving the situation of the Treasury, would come at the expense of millions of people who benefit from the current situation.
So don’t hold your breaths.

The writer teaches at the Max Stern Yezreel Valley College and was a Knesset employee for many years.