Anaysis / Plucking the Budget Turkey

What will be left of all the dozens of articles and alterations in the budget that were made public yesterday? What will actually end up in the statute books?

What will be left of all the dozens of articles and alterations in the budget that were made public yesterday? What will actually end up in the statute books?

The plan has a good chance of getting past the government, because Prime Minister Ariel Sharon has thrown his weight behind it and so far, no government has fallen over an economic plan. The real test will be the Knesset, where the plan will be subjected to some ruthless feather plucking. The Histadrut's Amir Peretz is already organizing opposition to the public sector wage freeze. But isn't logical that the public sector chip in with a wage freeze while thousands of people are being thrown out of work as business shrink and close? That's one for the lawmakers.

United Torah Judaism, with help from Ya'acov Litzman MK, chairman of the Knesset Finance Committee, will prevent the cuts in child allowances for those who didn't serve in the army, and Shas will fight the cuts in its ministries and anything it considers harmful to the poor. The Arab parties will oppose the entire package, and will team up with Shas and UTJ, as has happened in the past.

Any MK wanting a headline, or who regards himself as a standard bearer of social causes, will fight the entitlement cutbacks, and against the obstacles being put in the way of those who claim unemployment or guaranteed income allowances.

The result? Of the NIS 13 billion, quite a few will disappear or be erased in the process, and Silvan Shalom will have to make a choice - raise more taxes or cut more out of the budget.

He won't be able to cut the budget because the ministers will object, and in any case, Shalom believes that government spending is the way out of a recession. So why did he agree to the current cut? Because the deficit has gone way past anything logical.

The other choice is to raise more taxes on labor. But that's also blocked - he's already raised those taxes too high. Despite all his self-congratulatory rhetoric yesterday about being opposed to taxing wage earners, he already did raise taxes for them, as the top marginal tax bracket hit 60.5 percent, and by canceling some of the employer incentives. Those are steps that harm incentive to work, harm growth, encourage tax evasion, and force firings.

So, when judgment day comes, and the treasury doesn't have any other way to reach its NIS 13 billion target, Shalom will implement the tax on capital gains that is being prepared by the Rabinowitz Commission. Not that he'll be able to wait for them to complete their work. He'll impose taxes on shekel deposits, savings accounts, and pension funds.

Taxing the stock market is too complicated and requires lengthy complex legislation, to implement right away. So, if anyone thought the tax tale is over, they should wake up. We're only at the start of the road.

And how will Shalom tie up all the loose ends? He's promised capital gains taxes only when he can lower taxes on wage-earners. Simple. He'll call it a two-stage process. First the capital gains, and later, if and when the coffers begin to fill, the tax brackets will be changed.