Where the Truth Has No Value

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The media is going crazy, right in front of our eyes. Every day the expressions are becoming more and more extreme and populist. There are no counterarguments, no understatement; everything is harsh and crass. The important thing is to grab the listeners' ears and viewers' eyes, just as long as they don't switch to another channel. So they give them exactly what they want: Stories in which everything is bad, everyone is a thief, and the weak are always screwed over.

Even on the issue of raising value-added tax by one percent, the populism came from all directions. For a full week we heard of the impending disaster, the harm to the poor, and the steep price hikes - since "everyone" will round prices up. And the greater the economic ignorance of some of the radio show hosts, journalists and politicians, the cruder they were – because when you have no knowledge and no experience, you also have no limitations on talking yourself crazy.

True, VAT is a regressive tax. True, it hurts the poor more. However, we must remember that it was part of a much broader tax package that also includes a significant rise in income tax - not on the poor - which has an increase in capital gains taxes, real estate taxes, taxes on luxury goods, and also the cancellation of tax breaks on pension contributions for high-wage earners. In other words, most of the burden will fall on the rich - and that's good. So if that's true, why distort reality?

Remember also that VAT is the most efficient tax there is. It does not affect the desire to work and does not distort the allocation of funding sources in the economy. Everyone who is angry about tax evaders - who work under the table and do not pay income tax - must understand that only through VAT (and purchase taxes) can we collect something from them.

The second claim on the uncontrolled rise in prices, due to the rise in VAT to 18 percent, is also baseless. In the present economic situation, manufacturers and retailers cannot raise prices, even if they wanted. Economic competition is fierce and they cannot roll over the VAT increase on consumers.

Here's a question for you: How much did the consumer price index rise when VAT was raised from 16 percent to 17 percent in September 2012? It rose zero percent. In October 2012 it fell by 0.2 percent! And in November, it fell once again. The radio show hosts, reporters and politicians also screamed about a horrible inflationary eruption then, but it didn't happen. If that's true, maybe it's worth learning something from the experience?

Another claim is that VAT should be lowered on basic food items. But if that happens, there will be a need to raise VAT on all other goods to fill the kitty – with an immediate, huge outcry. Who can determine which is more important? Cheese or medicine for the kid? Rice or a schoolbook? After all, it is clear that differential VAT will trigger a witch hunt for interest groups, who will want to place their product on the desired all-star team. Water isn't important? Electricity isn't essential? Cheating will also shoot up, since who can supervise where the flour that the bakery buys goes - to price-controlled basic bread with lower VAT, or to luxury breads with full VAT?

They say that's how it is in Europe. True, but who wants to copy mistakes? Read the numerous studies conducted there, which prove that differential VAT is a failed policy that did not contribute almost anything to improving levels of equality, but did cause damage - such as distorting the allocation of funds, harming productivity and welfare, high administrative costs and a lot of fraud.

That is why we should not try to solve the problem of inequality with differential VAT. We must do so through the income tax system and giving direct subsidies to the needy, not to consumer goods. But what is the importance of facts in the face of condemnation, populism and the race for ratings.

Finance Minister Yair Lapid. Under fire for increasing VAT.Credit: Emil Salman

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