Opinion

Israeli Labor Chief’s ‘Radical Distributive Policy’ Doesn’t Bode Well

Labor-Gesher chief Amir Peretz discussing his economic plan at a news conference in Tel Aviv, August 2019.
Tomer Appelbaum

Labor Chairman Amir Peretz took a big gamble when he decided to run on a joint ticket with Orli Levi-Abekasis’ Gesher party rather than Meretz, contrary to the wishes of many Labor voters. Now Peretz is doubling that risk by releasing a socioeconomic plan described by one of its authors, Prof. Danny Gutwein, as “radical distributive policy.”

The two decisions rest on the same ambition: to shift low-income voters and voters outside the major cities from the right to the left. The hope is to fight the trend of Labor voters abandoning the party, and the chance that Labor-Gesher won’t make it into the Knesset.

Two good things can be said about the socioeconomic plan. The first is that Peretz actually says where the money to fund his ideas would come from. For his 30-billion-shekel ($8.6 billion) plan, he’d raise the marginal tax rate on monthly incomes over 44,000 shekels, raise the capital gains tax on controlling shareholders, require full reporting on income from property, and increase government debt by tens of billions of shekels. And there would be a small sop for political leftists: a halt to “special budgets” for isolated settlements.

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Another good thing is that the plan puts important issues on the agenda and casts in sharper relief the ideological alternative to the neoliberal line promoted by deep right politicians like Ayelet Shaked and Moshe Feiglin. Theoretically, Shaked or Peretz could become finance minister in the next government; neither would be able to implement all of his or her plans, but it’s clear what each would have on the menu.

Peretz is taking a big gamble here. He could lose Labor voters who would stand to be hurt by his economic plan. Labor’s electorate is generally well-to-do; many of its voters own property. If such a constituency equivalent to one or two Knesset seats bolts, the party might fail to make it into the Knesset.

The plan touches on important challenges – housing, the cost of living, pensions for seniors, disability pensions and the crises in the health system, but it offers expensive and ineffective solutions. One of these is  introducing zero VAT on 100 basic goods. Israel’s cost of living is very high and its causes must be addressed: bureaucracy, monopolies or near monopolies, inefficient companies, excessive government protections. Lowering the cost of living requires a battle against powerful groups that benefit from the current situation.

The people behind Labor’s plan are looking for an easy solution rather than taking on the Histadrut labor federation, workers’ committees, tycoons, food companies, car importers and others. This is a lazy and ineffectual move that would also grant a VAT exemption to people who don’t need it.

The idea of raising the minimum wage to 40 shekels also reeks of laziness. There is a direct link between wages and productivity, and Israel already ranks pretty low in the international productivity rankings. Why not promote a plan to increase productivity, one that would also yield higher wages? Well, that would require a fight.

The plan’s most dangerous idea is to let government debt increase from 60 to 65 percent of gross domestic product. This “will bring billions of shekels into the state coffers,” the party said. Since when does increasing debt increase revenue? It increases interest payments and could lower Israel’s credit rating and make its debt more expensive. For two decades, Israel has been consistently reducing government debt relative to GDP.

Over the past decade, increases in this percentage in developed countries haven’t been a function of ideology but part of the fallout of the 2008 global financial crisis. Peretz is indeed proposing a radical distributive policy, but it’s hobbled by misguided assessments and ignores potential side effects such as an erosion of the incentive to work and a budget deficit that would require cutbacks at the outset.