As the Rabinowitz Committee came out with its report yesterday, all the banks gathered their teams of experts to pore over the pages and digest the implications. The banks are quite used to this - they have enough past experience, as with the Ben-Bassat tax reforms circa May 2000.
The banks aim to find the glitches, the traps, and so to prepare their branches for the myriad of questions that their clients are going to fire at them in the next few days. And in the coming months, there will be a dialogue between the banks, the brokers and the Finance Ministry to round off the edges and close the loopholes before implementing the reforms. The many technical problems that will pop up will not necessarily place the whole show in jeopardy, because most of them can be solved. In addition, the committee took on board the preparations from years ago for the capital gains tax. Nevertheless, some question marks remain over the reform's potential success.
The first touches upon public faith in reforms. As tax reforms do not come out of thin air, funding of lower income tax must come from capital gains taxes. That is taking from one, to pay the other. But the taking from the one (capital gains) is immediate, while the giving to the other (lower income taxes) is to be spread over five years, from 2003 to 2008. This puts the public in a futures deal. Pay up now, and some time later we'll see if it was worthwhile.
The shenanigans on the foreign currency market in the past few weeks are proof of how low the public's faith is in economic leadership. In the current faithless climate, savers ought to be given some good reason why they should believe that these reforms will be implemented in their entirety, and not frozen once the new capital gains tax comes in.
Secondly, the reforms are based on an assumption that the economy will grow on average by 4 percent each year between 2004 and 2008. This would be wonderful, but we have already learned in recent years how quickly rose-tinted forecasts can go frighteningly awry. This is demonstrated in the negative growth rate seen late last year, and may be seen this year.
In 2008, the cost of these reforms is estimated at NIS 10.4 billion, NIS 6.5 billion funded by growth in the economy, the rest through additional taxes. In other words, the lion's share of the costs depend on the economy scoring a multi-year 4 percent growth success.
And if it doesn't, then what? The treasury's answer is "through state financing and-or the budget deficit or-and taxes."
When the main source of funding is a "lien on growth", it will be easier to evade responsibility when the reality fails to keep up with the promise.
Want to enjoy 'Zen' reading - with no ads and just the article? Subscribe todaySubscribe now