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And on the Economic Front

19 December 2002

By Yisrael Ne’eman

Israel has just passed a major tax reform under the tutelage of former income tax commissioner, Dr. Ya’ir Rabinovitch.  The inclusive tax ceiling was 62% (including income tax, social security, etc.) and has now dropped to 49%, still far too much for a small country in a massive squeeze due to the world crisis in the high tech markets and the continuing Palestinian terror offensive.  But it is a start.  To make up the shortfall, interest made off savings will be taxed at a general rate of 15%, and of course there are exemptions, especially for pensioners with modest incomes.  Previously if one lived off his wealth he paid nothing.  More reforms will be implemented in the coming years. 

The idea is to get people back to work, but unfortunately certain populations are not used to the idea.  Among the ultra – orthodox Haredim, it was reported on Israel TV just recently that 80% of the men do not work.  Within the Arab population very few women hold jobs (except for Christians).  Both populations have large families, about double the average Israeli family of 2.7 – 2.8 children.  The Haredi and Arab parties continued to demand benefits from the state (especially child allowances) without urging their populations to seek full employment.  Others are overly comfortable with welfare benefits which over the years made it useless to seek employment if one would only receive minimum wage in return. 

Unfortunately those really in need such as invalids, the chronically ill and the elderly had to share their benefits with those who refused employment and had the political muscle to continue milking the state. 

And that leads to the Knesset passage of the state budget 2003.  Most people consider it fairly disastrous, but it became law on December 18th with almost no debate, a most unusual occurrence.  One would think in an election year the budget would be a hot item, but the threat of loss of international credit rating by the state forced the issue.  The ‘must pass’ budget with its cuts in services to the population and supposed increased burden on the upper classes only elicited complaints by certain left wing parliamentarians and social activist groups.

Although Likud Finance Minister Sylvan Shalom considers it a “good” budget he is well aware of the continued heavy funding for Haredi yeshivas and Jewish development across the 1967 borders.  The average voter has rebelled against the overemphasis on these two clauses among them many moderates in the Likud, including apparently Prime Minister Sharon himself.

When asked by the press whether he would consider budgetary realignments after the elections the finance minister answered in the affirmative.  Not only does he know this would be the necessary correct action but he can already envision the next government without the ultra – orthodox nor the right wing pro-settlement factions.

But forget politics for a moment and back to the income tax reform.  The brightest spot is what was not done, there is still no inheritance tax meaning we can die for free.   Makes one wonder where our real worth lies and how to find tax loopholes.