The numbers released this week tell the whole story: Four huge corporations received tax benefits worth NIS 5.6 billion in 2010. They paid ridiculously low tax rates and are expected to enjoy similar breaks over the next few years. At the same time, value added tax will rise 1 percent next month and all Israelis will have to pay it. Income tax rates will also rise starting in 2014 by 1.5 percent in all tax brackets, even for those earning low wages.
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The story is both quite simple and at the same time amazingly absurd. The huge hole, the state budget deficit, will be filled by the weak, not the strong. Not by the huge companies whose profits rose in the past decade by hundreds of percent, but by those making minimum wage.
Why? Israel’s economic policies over the past decade dictated a corporate tax framework with decreasing rates – which is why, for example, the star Yair Lapid preferred to set up a company that employs him so as not to pay higher taxes as a salaried worker. Meanwhile, the government allocated dramatic benefits to exporters and strong multinational corporations. These companies were meant to pull the economy forward because of the huge number of workers they employ, the professional training they provide, their managerial culture and more.
The Encouragement of Capital Investment Law perfectly exemplifies the crooked floor of the economic policy, whose architects are still trying to convince us that it is straight and justified. They give significant benefits to the strong because they are strong and therefore important to the economy, taking advantage of its loopholes to the best of their ability through financial engineering, the work of accounting firms who excel at their trade. In other words, the strong grow stronger with the state’s support; the weak are trampled under regressive taxation and, without being tossed a life vest, in the end they will drown.
These companies are not criminals. They are well run firms, leaders in innovation and creativity in their fields and, most importantly, they provide jobs for tens of thousands of families. They are not to be blamed for the joke of tax collection over the past decade; they just took the candies the state passed out in our parochial self-deprecation. Despite the public uproar of the past few days, and Lapid’s reported fury, this self-deprecation continues and there are no real signs that it will end.
Even when the scandalous law is exposed, the captains of the treasury are walking on tiptoes so as not to anger the lords at Israel Chemicals, Teva and Intel. While they are levying taxes on the public with a wave of their hands because of the emergency, no one can even imagine reopening the unjustifiable tax contracts with the companies.
And the changes made to the Encouragement of Capital Investments Law in 2011, which did not significantly change the situation but at least contributes to a more equal division of the benefits, is expected to bring in significant revenues only at the end of the decade.
So what can we do in the meantime? In the meantime we beg the companies to throw us something from their trapped profits, which cannot be sent overseas without paying taxes first. And we extol them for fear they will have a fit and flee the country – though it is interesting to know that Israel Chemicals plans to pack up the Dead Sea, where it makes its money, and take it somewhere else. And still they tell us they are “the economic engines that pull us upward,” despite the fact that we are the ones paying for their tax breaks.
As the one who coined the phrase “sharing the burden,” Lapid must confront the giants who have until now received such illogical privileges. Lapid must understand that to solve the problems he was sent to the Knesset to fix, he must cut not only child allowances but also the inherent inequality that discriminates between a weak citizen and a rich one, between a small company and a cash gorilla. This inequality, which characterizes lagging, concentrated economies, is unjust, unethical and will not improve the standard of living for all Israelis in the end.