Memo to Israeli Protesters: Nothing is Free

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This year's social justice protest in Israel is no longer about revolution or dramatic changes, writes Sever Plocker. The Middle class stayed home while the ostracized working class took to the streets to demand money and care. But someone, somewhere, has to pay. 

The [social justice] demonstrations of last summer [in Israel] moved the alarmed Prime Minister to set up [in August 2011] a committee of experts headed by Prof. Manuel Trajtenberg. The committee [appointed to examine and propose solutions to Israel's socio-economic problems] focused, like a laser beam, on the socio-economic stratum that most demonstrators came from — middle-class families with children aged 3 to 11, where at least one of the parents was working. The committee evaluated, without basing its presumption on statistical data, that the series of economic crises that was hitting the country one after the other adversely affected the hard-working middle class more so than any other strata, and that this socio-economic stratum thus deserved special compensation.

The committee recommended that such compensation be granted in two forms: Generous governmental funding of free education for children aged 3 years and above and no less generous tax breaks.The Treasury officials who participated in the panel estimated the overall budgetary cost of the required governmental expenditure on education and social reforms and the various tax benefits proposed, on both direct and indirect taxation, at close to $15 billion (some 60 billion shekels) distributed over five years, from 2012 to 2017. And how was the government to fund these reforms, according to the Trajtenberg committee? By cutting the defense budget and by raising tax rates on higher income earners, as well as on corporations and stock exchange gains.

The government adopted the Trajtenberg committee recommendations and set out to implement them. The recommendations regarding the investment in education and the tax benefits were put into effect without delay. However, the so-called "rich taxation" has not been endorsed and rather than implementing the proposed cuts in the defense budget, an additional annual budget of nearly $750 million (3 billion shekels) has been approved to answer for "special security needs." The budgetary balance, which was one of the guiding principles of the Trajtenberg committee, has thus been upset, leading to a deficit of about $1.23 billion to almost $1.5 billion (5 to 6 billion shekels) in the current 2012 budget and in that planned for 2013.

What's more, most of the taxation forecasts have not been realized: The hiked corporation tax has not increased the state revenues by even one single shekel and the higher capital gains tax has remained on paper. The profits of the business sector are on the decline, and so are the taxes it pays, while the [Tel Aviv] stock exchange is gradually stagnating and actually dying. Comparing the Trajtenberg report forecasts with the real fiscal picture, one cannot but conclude that in each of the coming years, the government will be short of almost $2.5-$3 billion (10 to 12 billion shekels) required for implementing the Trajtenberg committee recommendations.

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In the past, Israeli governments enjoyed the privilege of printing money and generating inflation. Such measures are no longer allowed. The budgetary deficit may thus be covered by raising taxes that can be collected on the spot (such as value added tax and income tax) or by slashing other civilian government expenditures or by raising money from the public, that is, by issuing government bonds and increasing the government debt, or by some or all of these measures applied at one and the same time. The combined implementation of these measures is indeed the option proposed by Finance Minister Dr. Yuval Steinitz in the taxation and cuts package he is expected to submit to the government for approval shortly. The package includes an increase of the value added tax — that same tax that the social justice demonstrators demanded to reduce only a year ago.

It looks as if there can be no protest gratis. Each requirement and every recommendation for improving the economic status of one socio-economic stratum or another has an economic cost that someone has to pay, or else the national economy will be derailed and everyone will be damaged. The government cannot just give away [benefits to its citizens]. It has also to collect funds [in the form of taxes from its citizens to finance those benefits].Taking away from the "rich" alone may be a catchy slogan; however, it is impracticable. In recent years, the large majority of the well-to-do in Israel have become impoverished and their businesses are losing money.

With reference to the philosophic-moral question involved, one may wonder whether social justice necessarily means taking higher value added tax from all with the purpose of granting special budgetary and tax benefits to the young middle class. The answer to this question may be positive or negative; however, it has never been raised in any of the stormy rallies and debates.

This year, the social justice protest has assumed a different nature: It is no longer the middle class that is demonstrating against deprivation (imaginary deprivation, according to the statistics) and the (inequitable) old order. This time around, the protesters are [for the most part] of the lower class in Israeli society, the rejected and dejected socio-economic class. They are hopeless people, each with his own tragic life story, and endless complaints against the bureaucracy. Some of them are disabled, handicapped both mentally and physically. They are not crying out for a social revolution. All they are asking for is human treatment [on the part of the establishment] and financial support, more funds and more assistance.

It seems that they will receive none of these: The big benefits were already doled out last year. This year, we cannot look forward to a benevolent government that gives out benefits. This time, it is going to be a [heartless] government that is taking away.

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