Bottom Shekel / They Wanted Social Justice? They Got It

Most of the Trajtenberg Committee's recommendations are proportionate. It avoided proposals that would be like a red flag to the cabinet. Yet when it came to the Haredim, the committee aimed for the stratosphere.

1. The most popular proposal: The people demanded social justice; the people received it. The Trajtenberg Committee proposes to raise taxes, but almost entirely for the rich and well-established.

The tax increases focus mainly on corporate tax, which would rise from 24% today to 25% or possibly 26%. The committee urges increasing capital gains tax and dividend tax, from 20% today to 25% for regular people and 30% for controlling shareholders of companies.

Social protest - Michal Fattal - September 2011
Michal Fattal

The panel also urges that employers increase their provisioning for employees, and also advises that the highest earners pay more income tax. In other words, they would raise the uppermost tax from 45% to 48%.

Some of these taxes would affect the middle class too. Capital gains tax would apply to the public's savings, for instance. Corporate tax would apply to owners of small and medium-sized companies. But in general, these are taxes that would apply to the more affluent members of society.

With that, no question about it - the Trajtenberg Committee increased the egalitarianism of the Israeli tax system, assuming the government accepts the recommendations, and also preserved proportion in the nature and magnitude of the changes.

Moreover, it kept a cherry for the especially wealthy. Anybody whose total annual income, from capital or work, is more than a million shekels (which works out to NIS 83,000 a month ) gets to pay another 2% in tax. In other words, the wealthy in this category will pay maximal income tax of 50% and capital gains and dividend tax of 25%. An increase of 2% doesn't add or detract much: The committee estimates this clause alone will add NIS 400 million a year to state revenue, which isn't much. But appearances matter, and the richest should give more - yet the committee carefully did not take more than 50% of a person's income. That complies with a rule of thumb laid down years ago by Moshe Nissim in his capacity as finance minister: "A person should keep most of his income."


2. The most unpopular proposal: No, the Trajtenberg Committee did not agree to lower value added tax. Nor should it have.

Every 1 percentage point taken off VAT costs the state NIS 4 billion a year in lost income. The committee did the math and found that 70% of that sum would go straight into the well-padded pockets of the richest 30%. In other words, lowering VAT would be wasteful of precious resources, and therefore the committee - despite the urgent demand of the protest movement - stood firm and voted Nay.

Instead of lowering VAT, the committee opted to lower indirect taxes that directly affect product prices - excise tax on gasoline and customs. It also decided to abolish the distortion in National Insurance Institute payments by people grossing NIS 45,000 to NIS 75,000 a month. Mainly, it decided to grant credit points to fathers of young children, up to the age of 3.

The alternative to lowering VAT is rather complex, and it is far from certain that the public will greet it with understanding.


3. The most problematic proposal:

Since the Trajtenberg Committee sought to maintain budgetary discipline - not to allow the government to spend more than it ought to and, mainly, not to increase the budget deficit - it needed to propose ways to finance changes demanded by the protest movement in the field of daycare and schooling for the very young.

The main source is the defense budget, which should be contracting by NIS 2.5 billion, on a permanent basis. Its baseline will be lowered by that amount.

Prime Minister Benjamin Netanyahu feels under threat by the protest movement. He can supply the goods. He can cut the defense budget for 2012.

But what about 2013? What about after that? Will the lower defense budget hold? That is hard to believe and, therefore, it is hard to see how exactly the various proposals brought forward by the Trajtenberg Committee will be paid for.


4. The most important proposal: Reforming the government, as a precondition for "social justice."

"The failures of government have significant implications for the standard of living, equality, and for the ability of Israeli society to flourish," wrote the Trajtenberg Committee in its report delivered yesterday. "In the absence of planning ability, resources are allocated to wrong, even contradictory, avenues of activity."

Under these circumstances, there is precious little point in bogging down in debate over the size of the public sector, the panel members conclude: First, the government must be required to meet the responsibilities borne on its shoulders. And that, concludes the Trajtenberg Committee, is the main task that the government faces - its top priority.

Will the government act resolutely to reform itself? One must doubt it.


5. The most daring proposal: To require the Haredim to teach core subjects at their schools.

If when it came to tax reform, the Trajtenberg Committee was cautious to avoid stepping on toes and to remain within the realm of the politically feasible, this was not the case when it came to the Haredim. Here, it dared. Here, it raised a proposal that is inconceivable in the context of the Israeli political structure.

The committee, one must stress, targeted the demand only at primary schools, grades 1 to 6. Even this committee wouldn't dare suggest the same for the yeshivas that are the ultra-Orthodox equivalent of high schools for boys.

But what would be the point of requiring young Haredi children to study core subjects, while abandoning the whole endeavor once they reach their teens? Apparently, even the Trajtenberg Committee's daring has its limits.

The committee finished that section with a value statement, that the Haredi community would do well to behave like the secular community - meaning, that only a small proportion of its brightest people would turn academia into a lifelong career. In other words, only the best and brightest of the Haredi men should turn the study of Torah into their life calling.

Funding for the yeshivas should be structured to motivate them to keep only the most talented of their students, the committee wrote - but it failed to back up this general remark with an actual policy recommendation.


6. The most badly hurt: Who suffers most from the Trajtenberg recommendations? Again there's no question about it - the kindergarten teachers. The most dramatic proposal of all was expanding the education system for children aged 0 to 9, starting mandatory education at age 3, and requiring the state to pay for afternoon care at all kindergartens and schools up to age 9 (through third grade ).

It is a dramatic proposal, and an expensive one - and impacts on education and society as well.

Yet on the margins of this bold concept, one has to wonder about the status of the private kindergarten teachers. There are thousands of them in Israel, people who operate privately owned preschool establishments for infants and toddlers aged 0 to 4. They may find themselves out of work. The immediate meaning of the proposal is to eliminate the need for their establishments for children aged 3 to 4 years, since from now this service will be provided by the state (again, if the government accepts the recommendations ).

All that would remain for these establishments are the youngest children, aged 0 to 3, and even that to a lesser degree - because the government intends to expand its daycare options for that age range.


7. The seniors were not left behind. The social protest was a venue for young adults, people who can't stretch their incomes to covering the costs of maintaining a home, keeping everyone fed and clothed and sending the kids to school. These are the people for whom the Trajtenberg Committee expanded free preschool education, gave income tax credit points to fathers of children up to three years old and also had what to say about housing.

But it did not get swept away by the trills of the young, and did not forget about the aged. In the chapter on Israel's seniors, the committee adopted the National Insurance Institute plan to expand state-subsidized senior care. This is one of the most important proposals of all when it comes to promoting social justice.


8. What of all this is actually doable? Of the three most important proposals, the introduction of a core curriculum in Haredi schools and genuine government reform are the least likely to reach fruition.

The recommendations regarding the Haredim threaten the coalition. Government reform will presumably run into opposition from the targeted institutions. The third important recommendation, the extension of state-funded education to a younger age, will almost certainly pass the cabinet and the Knesset, in part because it's become a flagship issue for the protest movement.

Regarding most of its other recommendations, the members of the Trajtenberg committee were careful to keep an eye on government policy makers. Its proposals were proportionate. The committee kept its eye on budget discipline and didn't insist on things that would be red flags in government or the Knesset. For instance, it didn't mention the so-called Wisconsin plan to get people off welfare and into the workforce, when discussing the labor market. With that, the committee demonstrated wisdom, and greatly increased the chances that its recommendations will become law.