What Lapid Didn’t Do

The package of budget cuts and tax increases, with all its shortcomings, was an indisputable necessity.

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The harsh budgetary measures that were published Tuesday weren’t exactly news, but they nevertheless sparked a public outcry, because only when they were presented all together did people understand the magnitude of the blow. The initial response was, “How is it that they’re hurting the middle class once again?” After all, Finance Minister Yair Lapid promised to act on behalf of working people.

But what can you do? It’s impossible to raise income tax on the lower classes, who don’t pay it at all. It’s also impossible to raise taxes too much on the two upper income deciles. What’s left is the working people who belong to the middle class − that same majority that bears the economy on its shoulders, and will bear the brunt of the burden this time as well.

At bottom, these harsh measures were unavoidable. Yet they could have been moderated had Lapid taken a few steps that would have brought a great deal of money into the state’s coffers. But he was afraid to cancel the value-added tax exemption on fruits and vegetables, even though this is an outmoded exemption that came into the world almost 30 years ago solely due to the excessive power of the agricultural lobby. After all, it’s clear to everyone that there is no difference between tomatoes and bread or milk.

Lapid also failed to submit a plan to raise taxes on large strategic corporations like Teva, Intel, Israel Chemicals and Check Point, which pay corporate tax at a ridiculously low rate. He also refrained from raising tuition for university students, raising the retirement age for women and taxing kranot hishtalmut ‏(employees’ professional training funds‏). He thereby hopes to retain his popularity. But this aspiration is unsuited to someone who says he intends to take tough but necessary steps to avoid a crisis.

Alongside this criticism, it should be acknowledged that Lapid received a very difficult inheritance from his predecessor, Yuval Steinitz, and Prime Minister Benjamin Netanyahu. That duo submitted an irresponsible budget for 2011-2012, based on groundless expectations for higher tax revenues. And throughout those two years, they conducted a policy of handing out checks they couldn’t pay in an effort to curry favor with the public.

All that has blown up in our faces now, when it has become necessary to slash spending by NIS 18 billion and raise taxes by NIS 14 billion − enormous sums. And, to be clear, even after these harsh measures, we will continue to suffer from a deficit of 3 percent in 2014 and a dangerously high 4.65 percent in 2013.

Lapid said Tuesday that “had we sat with folded hands, social services would have collapsed.” That is true. The package of budget cuts and tax increases, with all its shortcomings, was an indisputable necessity. Now we need to see what will be left of it after it has been through the cabinet and Knesset, and how it will be implemented in practice.

Yair Lapid speaking in the Knesset, April 22, 2013.Credit: Olivier Fitoussi

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