Israeli Panel to Propose Bolstering Welfare Budget by NIS 6 Billion

Sources close to the Trajtenberg committee say Monday's final recommendations will include recommendation for a NIS 3 billion defense budget cut.

After weeks of deliberations in the shadow of the summer's mass protest over socio-economic issues, the Trajtenberg committee is scheduled to submit its final recommendations to the government Monday afternoon.

Sources close to the committee said the panel proposes adding NIS 5-6 billion a year to fund social welfare needs, without breaking the budget framework.

Trajtenberg - Tomer Appelbaum - 26092011
Tomer Appelbaum

The sources said this goal could be met only if the defense budget is cut by about NIS 3 billion - which Netanyahu expressed willingness to do last week - and if MKs do not start making populistic budget demands during the run-up to the next general elections.

Under the panel's recommendations, after the initial cut, the defense budget would grow in small, steady increments of 1-2 percent, in addition to being required to implement efficiency measures. If these changes to the defense budget are not implemented, sources said, it will be very difficult for the government to carry out the committee's proposals.

The recommendations will come to a vote in the cabinet after the holidays, either at the end of October or beginning of November. It is assumed that the treasury will try to water down many of the recommendations due to their high costs; moreover, some of the suggestions would require new legislation.

The committee's recommendations focus on four main areas: tax policy, housing, the cost of living, and competition in the economy. The panel gives great weight to acting against over-concentration in the economy in all areas, including banking, cement, transportation and energy. This could be accomplished, in part, by reducing import duties and upgrading regulatory mechanisms.

Cuts in state revenue would be covered by increasing income tax for those with very high incomes (with the highest marginal tax rate to be 48 percent ) and increasing capital gains taxes from 15-20 percent to 25 percent. Planned reductions in income tax for other brackets would be frozen, which would ostensibly hurt the middle class. Sources on the committee said, however, that this would be offset by canceling a 5 percent increase in the excise tax on gasoline that was planned for January 1.

Those hoping for free child care for children three months and older will be disappointed, but the panel did call for free, compulsory education from age 3 and a long school day that lasts until 4 P.M., to be instituted gradually through 2016. It should be noted, however, that a law calling for free, compulsory education from ages 3-4 has been on the books for more than a decade, but has been scuttled every year by the Finance Ministry through the Economics Arrangements Law.

Recommendations in the area of housing include doubling municipal real estate taxes on unoccupied apartments, and imposing fines on the owners of plots that have approved construction plans but are not built on for a period of time.

As expected, the panel's proposals did not address all the specific issues raised by the social protest movement. But in the introduction to the report, part of which was published Sunday on the committee's blog, committee chairman Manuel Trajtenberg set out what the panel believes should be the overriding principles governing all socio-economic policy.

"We were assigned the task of translating the protest into a language that could yield solutions," Trajtenberg wrote. "So here is what the dictionary that we developed has to say:

"Social justice means that there is congruence between the normative behavior, contribution and effort of the individual, and how he is compensated. Social justice means equal opportunities at the start, fair hiring and competitive practices down the line, and a basically secure and honorable retirement. Social justice means that if fate deals a blow to an individual, for whatever reason, society will help assure his basic survival, accessibility and respect."

Trajtenberg noted that "economic growth is the key to having the ability to provide the growing needs of Israeli society over time," but stressed that economic growth statistics cannot be the sole gauge of economic success, because "many quality-of-life aspects are not included in it, such as measures of inequality, health, the environment and the like."

Trajtenberg also called on the government to: work determinedly to integrate all sectors of the population into the workforce, specifically ultra-Orthodox men and Arab women; assure that the market economy plays by fair rules that do not create obstacles to entry, over-concentration and monopolies; clearly delineate its responsibility for providing public services, revisit their makeup periodically to adjust for changes in technology and demographics, and make sure these services are delivered fairly and effectively, even if they are outsourced, which is a legitimate option but must be done with care; and establish channels of dialogue with the public, particularly when considering changes and new policies that affect the public.

"The Israeli public will be carefully following developments, and it will not be possible to evade the responsibility of advancing its desire for a more just society," Trajtenberg wrote.

To those who feel threatened by the changes, he wrote, "We advise everyone to embrace the change, to integrate it and not try to turn back the clock of history."