Oh Give Me a Dome Where the Politicians Roam

Here are some ideas for how our finance minister could actually keep his election promises. He should start by axing that silly 'zero-VAT’ idea.

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Finance Minister Yair Lapid, center, with treasury officials at his August 7, 2014 press conference.
Finance Minister Yair Lapid, center, with treasury officials at his August 7, 2014 press conference.Credit: Ofer Vaknin
Guy Rolnik
Guy Rolnik

Shortly before the January 2013 election that brought Yair Lapid into the Knesset, he promised his “brother slaves” — that’s us — that he’d “find the money” that he said certain Israeli moguls and even entire sectors of the economy were robbing from us. He promised to take on the high cost of living, slash housing prices, conquer economic inequality and concentration and improve social services. In short, to return their money.

Last week the finance minister changed tack. Why deal endlessly with piddling matters, why prate on about money, why seek out the flaws in the free market and the public sector, that were better left to the clerks, the regulators, the petty politicians? The big guys should be dealing with big things. It’s better to be a Zionist and patriot. “Life in Israel has a price, Zionism has a price,” Lapid said on Thursday, at a media briefing he convened with the treasury’s top officials, and he called on Israelis to submissively accept the high cost of living here, because Israel is a small nation surrounded by enemies.

By way of conclusion, he turned into a military expert and announced that the Playstation generation had turned into excellent warriors. As if his vapid slogans about economic affairs were not enough, Lapid is now coining empty slogans about the army, about which he knows even less.

This is a last call to the Finance Ministry, to Israel’s civil society and to the voters of Lapid’s Yesh Atid party. Your cabinet minister, who promised you he’d find the money and begin to take on the interest groups, is abandoning the battle. He’s become a new Bibi with a stripe of patriotism a la Naftali Bennett and Avigdor Lieberman. Your job is to push him back on track and remind him that he didn’t join the government in order to prattle on about Zionism and patriotism. We have quite enough of that.

Linking the press conference with Operation Protective Edge was a bad idea. It helped the interest groups, first and foremost the defense establishment, to further entrench the idea that the military agenda supersedes the civilian one.

Lapid and his people should have used the press conference to tell the general public how he’d protect it economically in the years to come, and how this “economic Iron Dome” would be paid for.

1. Abolish “zero-VAT.”

The unexpected war in the Gaza Strip gives Lapid an opportunity to back down from his proposal to abolish value-added tax for some first-time home buyers. Economists widely slammed his idea, and the top treasury officials know it’s a triple whammy. First, it will reduce neither demand for housing nor home prices. Second, it will warp the entire tax system. Third, it will open the door to heightened bureaucracy and corruption, exactly the things Lapid promised his “brother slaves” he’d eliminate.

One might be tempted to let it go, to allow Lapid to insist on his zero-VAT plan as a matter of personal pride, were it not so crucial to lower the cost of housing in Israel. But zero-VAT would actually makes it harder to burst the real-estate bubble, that social and economic disease that transfers wealth from the have-nots to the haves, without the haves so much as lifting a finger to earn that wealth or contributing a thing to the economy.

2. Slash flab in the defense establishment.

The military establishment has already begun to examine where its intelligence and preparations ahead of Operation Protective Edge went wrong. It’s also an opportunity for an economic accounting.

The Israeli army has become big and flabby. That’s why for years the gap between the public’s expectations and its performance has been widening. The Israeli public spends 70 billion shekels a year ($20 billion) on the defense establishment, but much of that amount serves the establishment itself — the cronies, the suppliers, the retirees — and not national security. The Finance Ministry urgently needs to hire teams of auditors and former military and industry figures to go into the bases and the offices, examine the spreadsheets and to propose a new, leaner organizational structure.

The top defense people are too involved with building their own empires and budgets; only outsiders can point out the waste and flab and bring about change. A good 60% of noncontributory pensions (meaning only the state — that is, taxpayers — pay into it, not the employee) are paid out to people who are still working-age. Some get double pay from the state, receiving an army pension while working for an arms manufacturer or in a different state organization.

While millions of Israelis in the public and private sectors laboriously build up retirement savings of hundreds of thousands of shekels, army retirees have pensions worth millions. The public must demand that the army revisit its priorities.

3. Unleash the hounds.

Were it not for Operation Protective Edge, last month we would have celebrated the third birthday of the social justice movement, and for good reason. The protests triggered a domino effect, exposing the gangs in control and the way this country is really run. The collusion among bankers, business moguls, generals, lawyers, machers, property brokers, mayors, union leaders and journalists began to see the light of day.

Here is a short list of some of the scandals still under process. The Supreme Court has reopened Ehud Olmert’s vindication in the Talansky “cash-envelopes affair.” Former top-tier tycoon Nochi Dankner has been charged with stock manipulation; a lot of the cream of Israel’s business scene will be testifying at his trial. There is an investigation into stupendous corruption at the Ashdod Port, where much, much more evidently remains to be discovered. There is the investigation into veteran Israeli politician Benjamin Ben-Eliezer, which may arouse very hard questions about all the watchdogs in Israel — could it be that a man who held some of the highest positions in government over a period of decades (and was briefly a candidate to succeed Shimon Peres as president) received vast sums from business interests, without any investigation into his affairs? Then there’s the Harpaz affair, which could drag the entire army top brass through the mud.

Isn’t it time for the public to hear tapes from the chief of staff’s office — now in possession of the police — so we can really know what the people in charge of our defense, people who get 70 billion shekels a year to spend, are really doing? Are they spending their days discussing lofty matters of national defense? Or personal perks and vendettas, battling not the enemy but people they can’t stand, and appointing not the next generation of leaders, but their buddies? Might we discover economic interests related to arms-dealing behind the scenes?

4. Judge Kabub lets the sun shine in

Judge Khaled Kabub realized last week that unveiling the loan agreements between Bank Hapoalim and Tomahawk, Nochi Dankner’s private company, was critical to restoring the public’s faith in the Israeli financial system. Only sunlight can disinfect what happened behind closed doors in the last decade, in meetings between the tycoons and the big banks and finance institutions where people on salary manage the public’s financial assets.

The speed at which Bank Hapoalim appealed against Kabub’s ruling demonstrates just how much Israel’s bankers fear the light. The social protests, the collapse of some of Israel’s business pyramids and the shame some regulators are feeling as a result of the public’s belated awakening offer a tremendous opportunity to shed light on one of the darkest corners in the Israeli economy, the place where hundreds of millions of the public’s money goes each year.

Kabub has started the job, but the people of Israel can only hope he’s allowed to finish it.

5. Seriously gross pay

Last week the Central Bureau of Statistics published the its list of the highest-paid people in Israel. For the first time, the Israel Electric Corp. wasn’t the top-paying employer; the finance sector has overtaken the utility.

The average gross monthly salary in the finance sector is 19,382 shekels, up 6% from the year before, compared to 16,878 at the Israel Electric Corp.

Has the quality of service in the finance sector improved? Does the high pay reflect the benefit the sector brings to society? Not likely. It reflects mainly multiple market failures, mainly the concentrated banking system, whose 10,000 employees gross between 50,000 shekels and 100,000 shekels a month and have tenure for life to boot; they cost the banks and insurers between 7 billion and 10 billion shekels a year.

Above that giant group is a smaller clique of a few dozen executives grossing millions of shekels a year. They don’t much directly affect the industry’s outlay because the group is so small, but the indirect effect is huge. As long as Israel’s top bankers earn 5 million to 10 million shekels a year, they have no incentive to change the financial system or to help cap sky-high pay at certain companies in which their customers invest.

The Bank of Israel won’t reform the banking system, introducing competition and reducing concentration, because its primary purpose is to maintain the stability of the banks. But there is opportunity in the triumvirate of Finance Ministry Director General Yael Andorn, Capital Markets, Insurance and Savings Commissioner Dorit Salinger and Accountant General Michal Abadi-Boiangiou: Perhaps these three women can pull it off.

6. Are you being served badly, sir?

Just as Operation Protective Edge was winding down, an economic miracle happened. Israeli democracy — Knesset members, regulators, cabinet ministers — admitted for the first time in years that public agencies that feed off the public kitty should be judged by their quality of service to the public.

That sounds trivial but isn’t. Too often we put up with monopolistic behemoths like the Israel Electric Corp. the Israel Airports Authority and the Jewish National Fund, which exist mainly to further their own interests and herds of politicians and their cronies looking for cushy jobs.

7. Oh build me a Dome

With Operation Protective Edge winding down, we can stop talking about Iron Dome and return to discussing the need for an economic and social Iron Dome for all Israelis, not just the ones with friends in the right places. An economic Iron Dome would protect the people wherever they might be, not based on their workplace or friends. An economic Iron Dome would intercept corruption, waste, nepotism and ties between big business and government; it would shoot down any politician, regulator or representative of the public who demands that Israelis shut up and settle for median pay of 6,000 shekels a month, and submissively accept the high cost of living and the poor quality of services, because we’re Zionists and patriots.

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