Treasury Chief Opposed to Tax Cuts at This Stage but Leaves Door Open

Finance Minister Lapid says he made a mistake in not informing the public of his hatred for tax hikes during his first few months in office.

The Finance Ministry is currently opposed to cutting taxes next year, even though it has unexpectedly found itself with NIS 12.5 billion in surplus funds, Director General Yael Andorn said on Tuesday.

“This year we’re under-performing because there are excess tax revenues … We are investigating the impact on 2014,” she told the Calcalist financial daily’s Capital Markets Conference. “We will not undertake any step that we cannot allow ourselves. We will examine everything closely beforehand.”

Nevertheless, Andorn held out the prospect that some or all of the scheduled tax hikes for next year might be rescinded. “If there isn’t any need to raise taxes, we won’t,” she said.

Treasury officials have begun deliberations on a fiscal windfall, due to the government's collection of more taxes this year than it forecast in its 2013 budget, including more than NIS 4 billion in taxes on so-called corporate “trapped profits.” In addition, ministries have been spending less than budgeted.

Andorn said that the defense establishment must cut spending in favor of higher civilian expenditure. “We certainly would like to see a smaller share for the defense establishment,” she said.

Speaking at a conference in Sderot on Tuesday, Michael Sarel, the treasury’s chief economist, lauded what he said was Israel’s achievement in stabilizing the level of poverty and income inequality.

Policy makers have had “no small success” in preventing the poverty rate from rising, he said, because poverty is concentrated in the ultra-Orthodox and Arab sectors, two groups whose population is rising rapidly. He said Treasury policy since 2003 of forcing more people into the workforce was succeeding.

The thrust of the policy is to use education, by requiring Haredi schools to teach a core curriculum, in particular, to reduce poverty and inequality over the long term and by job creation over the short to medium terms. “These things are far more effective than child allowances,” he said.

The percentage of Israeli poor stood at 24.8% in 2011, up from 19.5% in 2009, according to the National Insurance Institute. Sarel, however, accused the NII of manipulating the data, a charge that its director general, Shlomo Mor-Yosef, denied later at the conference.

Speaking at the Sderot conference, Finance Minister Yair Lapid said the way to restore Israel’s prowess at innovation, which has deteriorated in recent years, was by ensuring that more Israelis share in the fruit of economic growth.

Lapid cited figures showing that the gross domestic product over the decade through 2012 had expanded 26.8%, while wages had risen just 2.1%.

“In other words, the people who enabled the economy to grow 17% saw only 2% of that go into their pockets,” he said. “They made the country the success that it is, they put it at the top of the world's developed nations and they got nothing for it.”

He asserted that Israelis in their thirties are the first generation in the country to be worse-off than their parents. “Not only that, they are living off their parents, stuck in their parents’ homes,” he said. “This we need to change.”

He denied that he was a socialist, reiterating his view that the prevailing trickle-down theory, according to which lower-income groups benefit as the economy grows by loosening business regulations and lowering taxes for the wealthy, isn’t working.

Lpaid said that the program of tax hikes and cuts in government spending that he implemented in his first months as finance minister had restored the economy to a growth trajectory. But he insisted that he had hated doing it.

“One of my biggest mistakes at the time we were preparing the budget cuts was that I didn’t tell the public, in real time, how much I hated doing it. That I did’t like it, was not proud and that I was only doing it because there was no choice,” Lapid declared.

Opposition leader MK Shelly Yacimovich (Labor), who also spoke at the Sderot conference, urged the audience not to listen to Lapid, recalling that he had campaigned as an advocate of an alternative to the policies of the last government and ended up implementing them.

“This is a society marching backwards hundreds of years toward feudalism,” she said, rejecting Lapid’s talk of Israel’s innovative abilities.

Ofer Vaknin