The interview with seasoned Israeli politician, co-founder of the centrist Kadima party and, at present, businessman Haim Ramon was held while driving to Jerusalem. "I am no longer a member of Kadima, forget it! I am on my way to a meeting with a delegation from the United States to discuss the establishment of a new party that would offer an alternative to Prime Minister Benjamin Netanyahu," Ramon explains. [Ramon served as minister under late Prime Minister Yitzhak Rabin, former Prime Ministers Shimon Peres, Ehud Barak and Ehud Olmert.]
As to other possible alternatives, Ramon says, there are none at the moment: "Shelly Yachimovich [Knesset Member and Labor Party leader] was seeking to ingratiate herself with Bibi until quite recently and Yair Lapid [chairman of the new Yesh Atid, or "There's a Future" party, which he founded in May 2012] is hoping to be appointed Minister of Education in Netanyahu's government. But Netanyahu is not irreplaceable. He is no Churchill nor is he a Roosevelt or a de Gaulle. They were really irreplaceable. Tsipi Livni [the previous Kadima leader] and other members of the party, we are going to set up party that will be the real alternative to Bibi."
Ramon, who had served as the Kadima Council head, resigned on May 9 to form the new party. He is a seasoned politician, one of the five most experienced politicians in Israel today. In the course of his rich political career he held the health and justice portfolios [among others] and served as secretary general of Israel's general federation of trade unions (the "Histadrut"), to mention but some of the highlights of his résumé. The economic events of the past week and the package of austerity measures approved by the government, which includes VAT and income tax hikes, elicit from Ramon the best of his verbal repertoire.
"They have all been preoccupied with the [budget] cuts, but failed to notice that the economic bubble inflated by Netanyahu has burst, like all his other bubbles," Ramon says scathingly. "Only a month ago he declared: 'We have never been doing better; the economy is in great shape; we are an island of stability amid a stormy and turbulent world, and tax cuts would promote growth.' And now, it has all blown up in his face. He cannot be relied on."
The Prime Minister explained the need for [budget] cuts, saying 'there's no such thing as a free lunch.' The economy [according to Netanyahu] has started declining and he was forced to take immediate measures.
"It was evident a year ago already that we were heading toward [an economic] catastrophe and it was then that it should have been realized that 'there's no such thing as a free lunch.' However, in practice, nothing has been done. Finance Minister Yuval Steinitz carried on as usual, living in the economic bubble, taking pride in the market situation. He is an utter failure.
Netanyahu's economic doctrine advocates the notion of a society without compassion. The rich are doing fine and they deserve it, while the poor are to blame for their condition, as they have not done enough to get on in life. In 1994, when I served as health minister, the National Health Insurance Act was enacted, under which the share of Israeli citizens in the expenditure on health was 24%, as customary in [Western] Europe. This rate has soared since to 40%, ranking Israel second only to the United States in terms of the cost of healthcare worldwide."
Where do you position yourself in terms of your socio-economic outlook?
"I am a social democrat in line with the Scandinavian model. Modern social democracy is in favor of giving people fishing rods, rather than fish. I am for a reasonable income tax, for tax breaks for populations in need and for differential VAT. This method is implemented throughout Europe. When I was still serving as a cabinet member I tried to lead a move in this direction; however, I was told at the time that imposing differential VAT would be problematic due to computing problems and difficulties in collecting the tax. Well, the sphere of computing has advanced since, thank God, and they have run out of excuses. I cannot understand why VAT on food in Israel is higher than that levied in the European countries. Why not impose a 5% VAT on fruit and vegetables and reduce the VAT on all other food products?"
This is precisely what Shelly Yachimovich is saying. So, what's the difference between you and the Labor Party leader?
"That's not true. Rather than giving people fishing rods, Yachimovich is giving them fish, although you cannot possibly give people fish in the absence of economic growth. She lacks a sense of balance. She represents the old-fashioned brand of the 1950s socialism. Her involvement with the big [labor] unions is problematic. It isn't by accident that she did not take part in the "cottage cheese protest" [Israeli consumer boycott announced in June 2011 in protest against the continuing rise in food prices in Israel, which gained momentum and led to a broad public discourse about the high cost of living in Israel]. Likewise, while she opposed at first the merger of the Nesher Cement Enterprises with the Hanson cement company [two years ago], she changed her mind under pressure by the [Nesher] employees [who were interested in the merger] and voted in favor of the move [although it would have strengthened Nesher's monopoly]. She is sweeping under the carpet the problems of the ultra-Orthodox Jewish community and the settlers and not by chance either. She objected to the proposed cuts in the allowances for the seventh and eighth children [which benefit primarily the families with a large number of children typical of the ultra-Orthodox community and the settlers]. She is constantly winking at the ultra-Orthodox and Netanyahu."
You are against raising the VAT; however, it is imposed because large parts of the population are outside the circle of taxpayers. So why not capture them?
"In that case, rather than raise the VAT you should impose direct taxation even on those earning as little as $1,250 (5,000 shekels) a month. There are other ways to fight tax evaders, for instance, severe punishment of those who increase the amount of black money in the market. The method currently applied does not work. Even the [recent annual] report released by the Bank of Israel states that the social gaps in Israel have widened."
How can the gaps be narrowed?
"The solution is not only to raise income tax, although I have no problem with the taxation of high-income earners. But why not cancel instead some of the tax breaks and save millions or even billions of dollars (billions of shekels)? Why should an air ticket to Cyprus be exempt from VAT while you have to pay VAT on a flight to Eilat [Israel's southernmost resort town on the shores of the Red Sea]? Why encourage tourism abroad?
The 'study funds' [an intermediate-term savings instrument] enjoy a historic tax exemption worth over $1 billion (4.2 billion shekels) [annually]."
Ramon adds. "I am not for full taxation [of the funds], but I do support their partial taxation. The tax expected to be paid by high-income salaried workers would yield state revenues of over $125 million (half a billion shekels)."
You served in the past as the Histadrut [Labor Union] secretary general [1994-1995]. Do you really believe that the Histadrut will allow anyone to meddle with the 'study funds'? In fact, Ofer Eini [the present Histadrut secretary general] already announced on [Thursday, August 2] that he would not allow any modification of the [wage] agreements currently in force [threatening a general strike if the existing wage agreements were reopened as part of the governmental program of expenditure cuts].
"If I offer the Histadrut the choice between a VAT raise of 1% and the revocation of some of the tax breaks granted to the high-income earners, it will opt for the taxation of the funds. However, one should enter into dialogue and reach an agreement with the Histadrut. There is no reason why those who have a 'study fund' worth $100,000 (400 thousand shekels) should not pay a regular tax rate on part of the fund, let's say on a sum of $37,750 (150,000 shekels)."
So why not tax the old-age pensions of the rich?
"In fact, I tried to do it in the past. There is nothing sacred in my eyes about old-age pensions, and I wanted to tax the old-age pensions of over $7,550 (30,000 thousand shekels) [per month] and pass the amount collected to those who receive low pensions. However, the negotiations were held with those who were enjoying high pensions and they thus naturally opposed the idea. For instance, if I were to receive a full pension, it would not be right if I paid a reduced tax rate on it. There is no reason why I should not pay a regular tax rate. The pension of high-income earners should be taxed and in that case, there would not be any need to raise the VAT by 1%."
You are saying that it is the Prime Minister's economic policy that has caused the present crisis. But Netanyahu benefited the salaried workers: He raised the minimum wage; he granted wage supplements to the public sector employees and endorsed wage increases for the physicians and teachers. So, should he now cancel agreements, such as that on the minimum wage increase scheduled for October?
"The Kadima government that preceded the Netanyahu government managed to overcome the 2008 crisis thanks to the reserves it had accumulated. The [present] government got into the current crisis because it had not prepared in advance [for the future] and wasted all its money. Before a storm breaks, one has to hoard food and fat. However, Netanyahu failed to do so. Had he acknowledged the dangers [inherent in the situation], he would not have signed the [wage] agreements and [would not have approved] the excessive wage increases. Pressures are always exerted by labor unions and, obviously, if Bibi says that the situation is just great, they all want to take part in the party. It could have been prevented had the alarm been sounded in real time. However, Netanyahu's natural allies were given a free lunch. And how! The settlers and the ultra-Orthodox enjoyed countless free lunches. Bibi is good for the ultra-Orthodox. He himself told them: 'You are not going to have a better prime minister than me.' And there are endless housing projects in motion [in the territories]. [National Union Party chairman] MK Yaakov (“Ketzaleh”) Katz told me proudly that 'we are now past the threshold of 350,000 housing units in the territories, not including Jerusalem.'"
But what do you want of Netanyahu? The ultra-Orthodox and the settlers are his natural allies, and he also preferred them over the others when it came to the Tal Law [the Deferral of Military Service for Yeshiva (rabbinical college) Students Law].
"If some are having a free lunch, while others are paying for it, it is unfair politics. Had everybody been enjoying a free lunch, I would have accepted it. I don't trust those who have been leading the economy up till now, and whoever has led us to the present situation should pay the price. If Bibi had not cut taxes, there might have been some money left in the Treasury coffers. The Treasury officials warned against the taxation reform [advocated by the Prime Minister] and in response he told them: 'You are asking me to convert to another economic creed.' That's the man. He has brought on us crude capitalism. He likes to speak ill of the tycoons, but he forgets his own American tycoon who is backing him."
At least give him credit for coming to his senses and taking unpopular economic measures to reduce the deficit, for which he may pay dearly. Even the [Bank of Israel] Governor lauded him.
"He deserves no credit. And why should he be given credit, what for? He had no choice but to take measures to mend what he himself had caused. It is [Bank of Israel Governor] Prof. Stanley Fischer who warned that the economy was standing on the brink of collapse and alarmed the government, which had done nothing before. It is only then that the government hurried to act, under pressure and in panic for fear that Israel's credit rating would be lowered. Netanyahu refrained from handling the economic issue, putting it off for [political] survival considerations. And the government has not even discussed yet the 2013 budget. I can tell you from my experience as minister that customarily, by August, the government is already past the phase of debate on the state budget. However, the finance minister still believes in the crazy notion of a biannual budget and thinks that it entitles him to the Nobel Prize for economics."
So, what is your alternative?
"The austerity package approved by the government includes projected tax revenues of more than %3.6 billion (14.4 billion shekels). However, a third of this amount, expected to be derived from stepped-up tax collection and confined profits, is rather in question. Any economic plan [worthy of its name] that I know of involves declaration of war on black money. And only God knows what is to become of the confined profits. A further deficit of close to $1.26 billion (5 billion shekels) is liable to evolve and weigh on the 2013 budget.
"The step called for is an immediate change of the order of priorities entailed by a political doctrine that prefers nonproductive populations that cost the State billions of dollars. The Treasury is granting tax exemptions that amount to millions or even billions of dollars (billions of shekels), and it should be examined whether these tax breaks are justified. However, I don't believe that it will ever happen. Deep down in his heart, Netanyahu still adheres to his neo-liberal outlook and still believes that the trend of tax reductions should be carried on. He changed his position under pressure by the [Bank of Israel] Governor. However, he is bound to change his mind and retract at the first opportunity."
So how would you explain the polls released in recent weeks that say Netanyahu is considered the preferred prime minister?
"I believe that these bubbles too will start exploding. Netanyahu prefers the ultra-Orthodox over the non-religious and ultimately, the public is going to realize it. In certain parts of the [Israeli] public, the penny has not dropped yet. It is a conceptual failure."
Where is the social protest movement heading? Will it succeed in changing the political map [in Israel]?
"I don't believe in protest movements that are not backed by political organization. Social protest is more than a mere happening. It must be translated into a political manifest. A voter should vote at the ballot box for the contender whose socio-economic policy is consistent with his views. Otherwise, the protest has no meaning. Social justice protest is invariably praiseworthy. However, it stands no chance of taking real shape and evolving into a full-blown force unless it has a political framework to sustain it."