Finance Minister Yair Lapid faces the significant challenge of having to cut NIS 20 billion from the state budget for 2013-2014 and raise taxes by some NIS 10 billion. These sums are enormous, and naturally generate dispute. But one should remember the reason for the cuts: the unrestrained spending by the previous government that brought the economy to its current state.
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If the previous government had acted responsibly, there would be no need for cuts now. However, the government wanted to be good and beneficent, and Prime Minister Benjamin Netanyahu wanted to be loved.
So he allowed the defense budget to grow and authorized free schooling for 3-year-olds. He agreed to subsidized day care and to tax breaks for working men. He increased funding for all government ministries, whether or not they needed it, and approved generous raises in the public sector. Child allowances grew, as set in the coalition agreement with Shas, and the settlements received more too.
Is it any wonder that all these areas need cutting if we are to avoid a crisis?
The cuts should do the least possible damage to economic growth and the financially disadvantaged − so why build a railway line between Haifa and Beit She’an for billions of shekels right now? It’s unnecessary, given that there are more efficient and cheaper public transportation options.
When it comes to revenue, it’s preferable not to raise taxes because doing so will cut growth and employment as well as investment. The government would be better off eliminating tax breaks that are no longer necessary, like the exemption on value-added tax for fruits and vegetables. Who can argue that tomatoes are more important than bread, or that cucumbers are more necessary than medication? This exemption is about the power of the agriculture lobby, and the time has come to stand up to it.
There’s also the VAT exemption in Eilat, the tax exemption on professional training funds (karnot hishtalmut) and generous tax benefits for strategic factories and exporters. All these should be dealt with.
It’s also important to enact reforms that will trim bureaucracy, lower quotas and increase competition, in a bid to reduce the cost of exorbitant food and housing prices.
Lapid needs to make it clear to the public that if he gives in to populists and gives up on the cuts, the deficit will be too high and the economy could deteriorate to the point of a real financial crisis featuring high rates of Greek- and Spanish-style unemployment. And no one wants to go there.