Israel Must Tax Firms, Not Vilify Them

Why can’t people fathom that, in certain cases, layoffs are the only way to prevent a tailspin that could end in a major corporate crisis and greater loss of jobs?

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It’s easy right now to win the prize for most popular op-ed piece. All you have to do is curse Teva Pharmaceutical Industries, say terrible things about its top executives and passionately argue that Teva shouldn’t lay off one worker after it has received so many benefits from the state.

Fame is fleeting. Once upon a time – actually, only a few years ago – Teva was the nation’s darling. Eli Hurvitz, once Teva’s CEO and chairman, was the handsome Israeli who won praise for his country throughout the world. All Israelis were proud of this Israeli company, which, from such humble origins, became a leader in the global pharmaceutical industry. Everyone held Teva stock, which was called “the people’s share.”

But those lovely days are over, and since 2010 Teva’s profits and share price have tumbled. Next year the patent on its flagship drug, multiple sclerosis treatment Copaxone, will expire and its profits will take a beating. To avert disaster, Teva recently announced a streamlining program that will include layoffs, including of Israelis. The result was an immediate hue and cry.

Finance Minister Yair Lapid lost no time in demanding that CEO Jeremy Levin drastically reduce the number of layoffs in Israel because, after all, it’s inconceivable that the company should dismiss so many employees after receiving such huge tax benefits. Opposition leader Shelly Yacimovich declared that not one Teva employee should be laid off because the company had received tax benefits totaling NIS 12 billion; in her view, the layoffs would be an act of cannibalism and a severe blow to Israeli society.

Such statements may sound logical enough, but both Lapid and Yacimovich are wrong. Tax benefits must not be linked to layoffs. In fact, such linkage could create a dangerous trap.

Regarding the tax issue, Levin must be pressured into partially relinquishing an absurd, infuriating benefit that amounts to zero tax. At least he should agree to be part of the new law that talks about taxes of 5 to 10 percent – but not zero!

But there’s no connection between the tax issue and the layoffs. The patent on Copaxone, which accounts for about half Teva’s net profits, expires next year. So the company must streamline and cut costs. First and foremost, it must slash the bloated salaries of its top executives.

But even when that step is taken, there’s no avoiding layoffs. Care of course must be taken to ensure that the dismissals are carried out in a generous, humane fashion. But why do people find it so easy to understand that Teva could increase its Israeli workforce to 7,000 but can’t fathom that, in certain cases, layoffs are the only solution to prevent a tailspin that could end in a major corporate crisis and massive layoffs?

Yacimovich is saying that the workers who are laid off won’t be able to find jobs and will join the ranks of Israel’s poor. Nonsense. Israel’s economy is dynamic, growing and generating 100,000 new jobs annually. We have to understand that economic growth takes place even when people move from a job where they’re no longer needed to one where they’re very much needed. Contrary to the way Yacimovich paints them, the candidates for Teva’s layoffs are hardly forlorn, pitiful people. They have alternatives.

But I’m worried about Lapid’s next moves; he’s the one who calls the shots in this game. Since he’s so interested in proving to the public that he’s an “achiever,” he might promise Levin benefits, grants or various other concessions to win the promise that there will be no layoffs. This is a dangerous trap. It would increase the subsidy to Teva while leaving the Israeli economy with an ailing, inefficient company.

In any event, the people screaming bloody murder mustn’t be allowed to triumph. Major companies like Teva and Intel Israel mustn’t become targets of scorn and hatred. Although they’ve received benefits that must be reduced, doesn’t it make sense to grant Intel (logical) benefits now so it will set up its next cutting-edge plant in Israel rather Ireland? This op-ed might not be very popular, but it’s hard to be both popular and right.

A Teva worker. If she's laid off, she'll still land on her feet. Credit: Ofer Vaknin