Most of it goes to the government
Even though Netanyahu has promised to lower tax rates to ensure growth, in reality he is doing the exact opposite.
Once, in the middle of the 1980s, Moshe Nissim was taken from behind the flock and anointed finance minister. He believed that the state must take its covetous hands out of the people's pockets, so he established the rule that "most of the pay for a man's work remains in his hands." He lowered income tax from 60 percent to 48 percent, slashed corporate tax and abolished many other taxes. The result was quick growth, a revenue increase and a budget surplus.
In 2003, we had a finance minister who thought along similar lines. He too cut spending and lowered taxes. He too achieved quick growth and a drop in unemployment. But today he is prime minister and has lost his courage. Today he decides according to opinion polls. He is being led instead of leading.
But the truth is that Benjamin Netanyahu has not forgotten the lessons he has learned. Deep inside he really does believe that cutting taxes is the best fuel for the growth engine. After all, only recently he said that "to grow, we must ensure that the tax rates are competitive. Therefore, to the extent that it is possible, the tax rates must be lowered." He spoke well, but he did the opposite.
Let's start with income tax. Netanyahu is proud of his long-term program under which income tax will drop gradually to 39 percent in 2016. Happy is he who believes that! Until we get to the promised paradise, we will wallow in hell, because despite the "long-term" program, Netanyahu has not lowered the marginal tax rate. He has left it at 45 percent and peppered it with a big lie, because Israel's real marginal tax rate is much higher. It's the highest in the world - 57 percent of incomes of between NIS 40,000 and NIS 80,000 per month.
In the middle of 2009, Finance Minister Yuval Steinitz promised that this would merely be a temporary hike for a year and a half due to the world economic crisis. Today it's clear that the "temporary" hike is permanent and the "hump" that was supposed to be written off at the end of next week will not be removed in full, and maybe not at all. The result will be the continuation of the high and damaging marginal tax rate of 57 percent in the coming two years as well.
The other tax brackets are also quite ferocious. The tax on the middle class reaches an excessive 42 percent already at an income of NIS 13,000 per month. So how can Netanyahu say without blushing that "we must lower the tax rates" when he raises them?
The story with the value added tax is fairly similar. It was also raised by Steinitz during the world crisis, to 16.5 percent, with a promise that it would be lowered again to 15.5 percent in 2011. But next week the budget will be passed in the Knesset with a VAT of 16 percent; why not take another half a percent from the public if this is possible? And who cares if this harms poorer people? The important thing is that there will be another NIS 1.8 billion per year for pocket money.
And that's not all, because the government also sends its long arm into our pockets using a long list of indirect taxes. Starting in January, the excise tax on gasoline, for example, will go up by 20 agorot and the price will be NIS 7 per liter - the highest in the world. This is because the treasury wants another few billion to pay for the most inflated cabinet in the country's history (30 ministers and nine deputies ). It needs to pay the excessive manpower and expensive salary raises, and to fund the yeshivas and their students.
The treasury officials also think nothing of hitting out at the high-tech workers and the middle class, who get a company car for both work and leisure. Starting in January, the cost of using such a vehicle will rise by hundreds of shekels per month, which is an additional tax for all intents and purposes. And we must not forget the increased cigarette tax, the hike in the arnona (municipal property tax ) and the plan to impose a levy on water.
All these tax hikes are detrimental to the economy. They make it less attractive to investors and workers and therefore harm growth and employment. They transfer too many resources to the politicians, so we see profligate waste in the public sector that is only getting worse. The heavy taxes take the spice out of the lives of the self-employed and the salaried workers in the private sector, who are the economy's growth driver. They work from morning to night but can't support their families properly because most of the pay for their work finds its way not into their pockets but into the government's.