Analysis | No More Tax Breaks

Teva Mass Job Cuts a Slap in the Face of Israel

What have government officials been telling us for years? Teva receives billions in tax breaks so that it will keep its jobs in Israel. It took the money, and now it's firing people.

Teva Pharmaceuticals’ announcement on Thursday that it intends to fire thousands of workers, including around 800 in Israel, is a slap in the face of the state. After all, what have government officials been telling us for years? That Teva receives tax breaks worth billions of shekels so that it will keep its jobs in Israel. So Teva took the money, and now it’s firing people.

According to a preliminary examination by the finance and economy ministries, the terms of the program under which Teva gets its tax breaks allow it to fire workers without having to repay the taxes, even though the breaks were conditioned on its promise to employ workers for a set number of years. (The number varies from company to company, depending on the specific agreement each reaches with the government.) It’s hard to escape the feeling of missed opportunity that arises from the way companies have treated the Encouragement of Capital Investments Law in its various and ever-changing incarnations.

It’s also interesting that Teva announced the dismissals shortly before the deadline for completing its talks with the Israel Tax Authority on freeing up trapped profits (earnings that companies have not distributed to shareholders as dividends, and thus have not been taxed). The previous finance minister, Yuval Steinitz, gave large companies in this situation a significant break, allowing them to free their trapped profits by paying 50 to 60 percent less tax on them than they actually owe. But the deadline for taking advantage of this option expires in another month.

The tax authority estimates that Teva owes around NIS 1.8 billion on account of money it spent to purchase companies overseas (since the tax breaks are given to promote expansion in Israel, not abroad). But treasury officials expected it to reach a compromise with the authority that would let it free its trapped profits upon payment of only about NIS 1.5 billion.

As in the case of Intel, which demands that the state give it grants worth hundreds of millions of shekels every five years or so in exchange for a promise not to reduce the number of people it employs at its Kiryat Gat plant, it is now clear that the billions Teva receives are a bottomless pit: No amount will ever be enough to guarantee the state’s goal of preserving long-term employment in Israel.

When the Economic Arrangements Law accompanying the budget was passed earlier this year, Finance Minister Yair Lapid said he intends to consider revising the Encouragement of Capital Investments Law. But before any such discussion is held, it’s past the time for the state to finally do some serious economic research to determine to what extent giving benefits worth billions of shekels to giant corporations actually contributes to achieving the state’s goals.

It’s nice to be able to boast of being at the forefront of multinational corporations’ research and development. But it could be that if we invested this money instead in small and medium-sized companies, they would in time develop into our own local versions of Intel.

Tess Scheflan