Everywhere you turn there are people full of hope who are asking: When are they going to reduce income taxes? By how much? How much will we make from the move? It is hard to avoid thinking how easy it is to excite people, to feed them a tall story, and to fire them up with baseless promises.
On the eve of the elections, the sorcerer declared that if he was elected prime minister he would lower the maximum tax on income to 35 percent, which is "the optimal tax rate according to many studies around the world." Only recently, the sorcerer's apprentice has announced that at the center of the economic plan to be submitted for government approval in the near future, we can expect a tax revolution "at the center of which is a real cut in personal income taxes." So is it any wonder that the two of them are winning tempestuous applause from the audience that is watching the trick?
After all, we all know that the real problem that Finance Minister Benjamin Netanyahu and Minister (without portfolio but "in" the Finance Ministry) Meir Sheetrit are facing is how to plug the huge hole that exists in the state budget, a NIS 15 billion hole that is threatening the relative stability of our lives. We also all know that to come up with this tremendous sum, they will have to impose very harsh decrees on the nation of Israel. The real question is whether they will succeed in cutting the National Insurance Institute allotments to families with many children. Will they be able to lower salaries in the public sector and even dismiss employees of local municipalities and government companies? Will the agricultural lobby let them impose value added tax on fruits and vegetables? Will the inhabitants of Kiryat Shmona, Ariel and Sderot sit quietly by when they propose scrapping the tax breaks throughout the country? Is it possible to imagine another cut of the defense budget? Will it be possible to carry out deep cuts at the Education Ministry and the Health Ministry?
But instead of coming to the public and telling it the bitter truth - that it is impossible to lower taxes this year (apart perhaps from reversing former finance minister Silvan Shalom's mistake of eliminating the ceilings on National Insurance and the health tax) - and to report to it that we are in the midst of a difficult crisis period, that it is necessary to prepare for a period of sweat and tears, that the government has a huge deficit, that there is no money for anything - they are telling the public that it is possible at a time like this to perform a trick and lower taxes at this of all times.
Sheetrit has a whole thesis about tax reductions. He says that "low taxes will increase the incentive for work, investments and consumption, and thus accelerate the growth of the economy, which will lead to a marked increase in income from taxes." So attractive, so beautiful. But Sheetrit is forgetting one minor detail - that this entire thesis works only in an economy that is in a normal situation, not in a profound crisis that is the result of a long war of attrition. It is desirable that an economy be in a state of potential growth, with a budgetary surplus or a small deficit; then it is possible to take advantage of the opportunity and lower taxes, thus encouraging economic activity and increasing the desire to work. In such a normal situation, the economy will enter a process of rapid growth and income from taxes will be decreased only slightly.
But this can be done only in a normal situation. For example, in the mid-1980s, after the problem of hyperinflation was solved and we returned to normalcy, then-finance minister Moshe Nissim lowered the tax rate from a level of 60 percent to 48 percent and the economy only benefited from this. Immediately after the Oslo Accords were signed - when investments began to flow into Israel in 1994 and the economy entered a period of rapid 7 percent growth - was it the right time for then-finance minister Avraham Shochat to decrease taxes, but the opportunity was missed.
But today? After all the credit rating companies have been threatening to lower our ranking if we dare go beyond a deficit of 3 percent? And after we have already learned that the public will immediately go running to the dollar if it finds out that the government has deviated from the budget - a tax cut is not possible at all. Can anyone be certain that cutting taxes will increase growth and thereby income from taxes? Will the tax-dodgers suddenly volunteer to pay up? Will jobs be found for all the hundreds of thousands of people who are out of work? Will investors start investing here regardless of the security situation and the terror attacks? Will the public suddenly forget about all the dangers and uncertainties and start to consume more and fill the malls - or will it take the extra bit of money it receives because of the tax cut, buy dollars with it and transfer them abroad?
The talk about lowering taxes is irresponsible talk and divorced from reality. It is reminiscent of someone who sees his house burning down before his very eyes, but instead of running to grab the hose and starting to put it out, decides to check what the effect would be of spraying a new kind of fuel on the fire. Maybe the fire will go out? Maybe the sorcery will work?
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