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A few moments after the Lahav capital market forum began the other day at the University of Tel Aviv, it became apparent that the official subject of debate, "The Underwriting Law," interested nobody at all.

What the underwriters and chairman of the Tel Aviv Stock Exchange, Yair Orgler, wanted to talk about was tax on capital gains. Specifically, on the horror scenario in which, from January 1, 2005, capital gains tax will be equal, whether the investment was in Israeli or foreign securities. From then, "Israeli companies will have nowhere to issue, and underwriters will be out of work," Orgler thundered.

The underwriters agreed. As Tsahi Sultan of Clal Finances put it, "Medium-ranking Israeli firms won't have anywhere to raise capital, because Israeli investors won't want to buy securities in Israel." He even added, possibly tongue-in-cheek, "I'm practicing my English before starting work with a foreign bank."

Hang on. What are Orgler and friends really saying? That the second capital gains tax on Israeli and foreign securities is equal - at 15 percent - Israeli companies won't be able to tap the markets?

Or, in other words - the moment the Tel Aviv Stock Exchange loses its protective cover, it and the companies and the underwriters won't be able to compete with imported goods, stocks and bonds of foreign corporations and governments.

Don't know whether to laugh or cry

This is the stage where we don't know whether to laugh or cry. It is laughable that the chairman of the Israeli stock exchange, and experts on floating companies, think a key reason to buy stocks or bonds in Tel Aviv is that tax is relatively lower.

It is laughable that they are ignoring the natural tendency of investors worldwide to focus their attentions on their home turf.

It is laughable that they are ignoring the real pricing and price-adjustment mechanism. Meaning, after asset prices adapt to the new tax regime, there will be no difference between investments in the Tel Aviv and foreign markets.

Or maybe we should cry. We should cry because the tax rates were supposed to be equalized in 2004, but the reform was postponed to 2005, leaving us stuck in the local market another whole year.

We should cry because the person talking is the same one who allied with the banks to fight equalizing the tax rates, even though he hints that with the protection gone it would be better to invest abroad.

Or maybe we should cry because the man leading the local stock exchange for the last eight years, and the underwriters who best know the merchandise on the market, understand that without a tax barrier, there aren't many reasons to invest in the relatively illiquid, unreliable Tel Aviv Stock Exchange, which is also smaller and has less goods of interest.

So our suggestion this morning is not to cry or laugh, but to shout aloud and smile.

Shout at Finance Minister Benjamin Netanyahu, who bowed to the lobby of the stock exchange and the banks, and postponed the reform by a year. Tell him not to fold again.

Shout, Bibi - don't forget that the tax equalization is one of the most important reforms of the capital market, and don't forget the principles of the free market, of liberalization and deregulation, even when the interests of the big bankers and underwriters are at stake.

And smile, because if Bibi stands firm and rescinds the umbrella sheltering the TASE, next year our capital market is going to look entirely different. It will be a market where all the players - from the companies, to the stock exchange itself, to the underwriters and institutional investors - will be measured by international criteria.

It will be a market where every institutional investor will have to clearly explain why it's buying bonds from Nochi Dankner and Yitzhak Tshuva or Lev Leviev, instead of bonds issued by General Electric, Wal-Mart or Citigroup.

It will be a market where every person managing somebody else's money will have to explain, come year end or periodically, why his returns are lower than those achieved by international funds, instead of proudly boasting that he beat the big banks, or whatever silly criteria used here thanks to that defensive taxation.

We should smile because we all remember the moans of despair and shrieks of woe from the industrialists when Moshe Nissim, the finance minister 15 years ago, forced them to face imports. Looking back, abolishing the protection over local manufacturers was one of the best things that ever happened to the Israeli economy, and to the Israeli consumer, in the last decade.