dahan - Alon Ron - August 3 2011
Dahan: 'What is needed here is something much more drastic − a renewed distribution of income and the state’s involvement in providing an answer to citizens’ needs.' Photo by Alon Ron
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The draft document containing the demands of the heads of the tent dwellers' protest - published yesterday in Haaretz - calls for a gradual reduction in indirect taxes, stopping the privatization process, cancelling the national housing committees, scrapping the income tax reform, imposing income tax on all income, and investing the excess income from direct taxes in Israel's citizens.

In addition, the protest leaders are calling for renewed investment in social services, including free education from the age of three months; additional job slots, beds and medical equipment for the health system; and more job slots for policemen, firefighters and social workers.

The draft is based largely on a document known as the Litmus Paper that was drawn up by the Dror Israel movement and that is currently being circulated in the various tent cities in different parts of the country.

Dr. Yossi Dahan, chairman of the Adva Center, a research institute that monitors economic trends and developments in social justice, spoke to Haaretz about the document.

Dr. Yossi Dahan, what is your impression of the protest leaders' draft demands?

If the neoliberal vision was the removal of the state from social and economic affairs and the application of the principles of market and competition, then these demands call for a return of the state and the establishment of a social democracy. That is to say that the state supplies social services to all its citizens on a universal basis, the state is involved in the economy in certain spheres and reduces the lack of equality. What is interesting in this document is that these are not insignificant demands.

The document shows economic responsibility since it outlines a list of demands that is a list of expenses along with sources for their funding. Another interesting thing is that the document is not restricted to the agenda of economic newspapers whose main solution lies in reducing concentration and increasing competition. What is needed here is something much more drastic - a renewed distribution of income and the state's involvement in providing an answer to citizens' needs. The document talks about rights that were neglected by the political system but also by the judicial system - social rights such as the right to housing, the right to health, welfare rights. Are there demands that you feel are missing from the document?

I think that a large part of the demands are universal demands that are for the benefit of all. But what is missing is a reference to everything known as a social-security network and that touches on the issue of stipends - child stipends and stipends in general, such as for the disabled. These are demands that refer to those at the bottom of the socioeconomic ladder, but the present list of demands is in any case extensive. Another thing is that one of the worst problems, that causes low wages and lack of equality, is indirect employment through manpower agencies and contractors for services. I would present a demand for direct employment of workers instead of indirect employment.

The draft document, as of yesterday, also did not relate to the budgetary deficit ceiling. To what extent do the proposed changes in taxation make it possible to increase support for social services and strengthen the welfare state? I think that if there is a small change in deficit in order to pay for expenses, this will not be a big disaster. Most of these expenses will generate income that is not a complete loss, and even if it is, we must not be upset by a scenario where the deficit has to be raised by a minimal amount. But I think there are sufficient sources to pay for the expenses that do not harm growth and that touch on inequality, [such as] transfers from people to whom, for years, the state gave huge sums. These demands are very realistic and were suggested also by Avia Spivak who was the deputy governor of the Bank of Israel. A lot of people raise those same sources of income to pay for social services, such as raising company tax and direct taxes on people who earn a very high salary, estate tax, cancelling exemptions for companies. Only a week ago, the exemptions that [pharmaceuticals firm] Teva receives were published and they run into billions. These are significant sums. According to Spivak's estimates, it would be possible to save NIS 20 billion by changing the Israeli tax system. It must be remembered that between 2003 and 2010 there were tax reforms in favor of those with high incomes to the tune of NIS 46.2 billion.

In recent years there has been a dramatic drop in company tax in Israel, that currently stands at 25 percent and is expected to go down to 16 percent in 2016. Also the top tax level for citizens has been reduced from 57 percent to 44 percent and is expected to go down to 39 percent.

What is your reaction to the argument that the income tax reform is about global economy incentives that are competing for investments?

It is true that in the global economy there is competition over investments that finds expression also in the rate of taxes, but Israel has overstepped the mark to a great extent from this point of view, beyond what is considered reasonable from the economic point of view or fair from the moral point of view. I will rely on the top people, at least in public perception: [Bank of Israel Governor] Stanley Fischer, together with the Finance Ministry, contrary to Prime Minister Benjamin Netanyahu's position, say that the trend of reducing taxes must be stopped. One cannot suspect the governor of the Bank of Israel of being interested in having investors flee from Israel to other places.

From this point of view, even people who are conservative and neoliberal have come to the conclusion that there is a wild exaggeration here with regard to cutting taxes both to companies and to individuals. So in this respect, the threat in the scary scenario - that if company tax is not lowered by a few percent then all the foreign investors will head for Ben-Gurion airport - this scenario is baseless. The foreign investors come to Israel not only because of one less or more percentage of tax, but for all kinds of reasons.