Give Lapid a Hand, Not a Raised Fist

The complete support for the budget from the main parties in Israel's governing coalition is anything but routine. The finance minister deserves much appreciation.

Just as no person is perfect, no budget is perfect. There may be room for improving the new state budget; for example, a progressive value-added tax or a progressive corporate tax. It's also unfortunate that there is no mention of an inheritance tax, an original Jewish idea at its core.

Still, the pouncing on Finance Minister Yair Lapid and the all-out assault on the budget is overdone and populist. The proposed budget expresses concerns for both social justice and economic logic, and does the most it can in the current conditions.

The claim that the budget mainly harms the economically weaker classes is unfounded. Four major revenue sources in the proposal are designed to reduce the appalling deficit inherited by the finance minister. Two of these sources don't affect the weaker classes one bit, and the third barely affects them. One revenue source hurts all segments of the population, but it's inevitable.

Raising income tax by 1.5 percent doesn't affect the weaker classes at all; the four lowest income deciles are below the tax threshold. Income tax is the most progressive form of taxation and in absolute terms mainly hurts the highest earners. Even after the tax hike, the tax burden as a percentage of Israel's gross domestic product is among the lowest in the OECD.

This is also the case with taxing pension contributions for salaries above NIS 15,000 per month. This tax doesn't affect the weaker classes at all, and it spares a large majority of the middle class. It will mainly sting the top two income deciles and especially the top percentile; this clause alone will reduce their take-home income by hundreds of shekels per month. It's not a light burden, but these are the deciles that benefited from economic growth in recent years, so they should carry the brunt of the burden of saving the economy.

Value-added tax isn't considered progressive because it's levied at one rate. But value-added tax is levied on consumption, making it progressive in this sense. The big money from raising VAT will come from the upper deciles - people who dine at fancy restaurants, stay at expensive hotels, buy gasoline, engage in recreational activities and purchase luxury goods. For a working-class family, adding a percentage point to value-added tax means dozens of shekels per month in additional tax - not trivial but not intolerable. In contrast, a family in the upper deciles would suffer an added expense of hundreds of shekels per month.

The cut in child allowances, though, is a heavy blow to the people, especially the weaker classes. It's meant to correct serious distortions created by the ultra-Orthodox parties' political pressure - and it's crucial for increasing labor-force participation in the Haredi and Arab communities.

In any case, there are positive phenomena in the budget and the process by which it was prepared. It's the first time in a long time that significant cuts have been made to the defense budget, and without strife, slander and leaks from the treasury or defense establishment. And it's the first time a budget that hits salaried workers' net pay is being passed without strikes or strike threats.

Finally, the complete support for the budget from the main parties in the governing coalition and every minister but one is anything but routine. This serves the economy, society and the country well, and the finance minister deserves much appreciation.