Taking Stock / Drat That Economic Growth

Meir Sokoler gave the signal.

And then the revelries began. Maariv wrote that the fruits of economic growth aren't feeding the poor. Haaretz went even further, blaring, "Growth benefits only the rich".

The trigger was a sentence in the Bank of Israel report on the State of the Economy, where it wrote that cutbacks in National Insurance Institute stipends had exacerbated poverty.

A few hours after the report was published, some Bank of Israel official woke up and hastened to publish an amendment: "The sentence doesn't reflect the report's intention." The central bank explained: "The cutback in National Insurance Institute stipends increased participation in the workforce, and moderated the negative short-term effect on economic inequality."

But that belated clarification may be too late: "economic growth" may become another enemy of the people, another phrase associated with Bibi, with the rich, the elites, the Thatcherites, the capitalists, and all the other insults making the rounds in the public debate. Soon, people will be demanding the heads of the hogs responsible for that sordid "economic growth."

The pestilence of economic growth

Before that happens and "economic growth" gets equated with crushing widows and orphans, let's take a look at the facts.

Unemployment benefits, child allowances, disability pensions, the drug basket (treatments subsidized by the government), surgical and healthcare services, education, and all the rest of the things the state should supply to its citizens are financed by taxes.

Taxes are generated by economic activity. They are collected from salaries, corporate profits, transactions and consumption.

The main way to increase tax collection is to stimulate higher economic activity: more workers, higher salaries, more companies, more business, more profits and more consumption. That increase in economic activity is exactly that pernicious "economic growth" that is so scorned today.

The claim that only the rich benefit from economic growth is patently absurd. The rich are the main payers of tax, in Israel and elsewhere, too. Without their tax, the state couldn't supply its basic services to the rest of the people, especially to the poor.

Who pays the tax

The State Revenues report shows that the uppermost two deciles, or the richest 20 percent, pay 87 percent of Israel's tax revenues. The uppermost 2 percent pay 33 percent of all income tax in Israel.

Another great enemy of the poor is that high-tech sector. Even the Bank of Israel, in its desperate efforts to appear to have a social conscience, has been contributing to the hatred of high-tech in the last couple of years. This week, the acting governor stated: "Everything should be done to prevent the rosy dream of high-tech from becoming the nightmare of the old industries. Their growth is very good for the high-tech companies, but doesn't help the poor."

What Sokoler neglected to explain is that high-tech has become one of the greatest generators of tax revenue in Israel. In 2000, the year of its great boom, high-tech managed to balance the government's budget for the first time in Israel's history.

High-tech is the No. 1 importer of foreign capital to Israel through product exports and fundraising. That money pays salaries to 50,000 people, most of whom earn good salaries, and therefore, pay a lot of tax. Their tax is shouldering an increasing portion of the country's outlay on welfare, education and healthcare.

The tax income generated by the rapid growth of the 1990s was what allowed the government to bridge the growing gap between the gross income of the richest and the poorest echelons of society. Its method of resolving the growing gaps was, of course, a time bomb that blew up in our faces when economic growth halted four years ago.

The question isn't tax, it's what's done with it

When there is no economic growth, when the economy is contracting, when GDP is falling, then we understand why "crisis" is not just a catchphrase among economists. At the end of 2002, after two years of contraction, Israel trembled on the brink of economic and financial crisis.

Another year of economic contraction could have destabilized the banks, frightened off foreign investors, and triggered an economic crisis of an unprecedented magnitude in Israel, forcing the state to turn off the tap for basic services.

The question is not growth, it's what's done with the tax revenues that growth generates. The question is how much to allocate to the health basket, and how much to pension plans for air force personnel. How much to give to the Kupat Holim health funds, and how much to the monopolies' violent labor committees. How much should be earmarked for superfluous government companies, and how much for the aged. How much for the bloated bureaucracies at the Health and Education Ministries, and how much for doctors and teachers.

Growth is not the enemy and neither are the rich or high-tech workers.

The enemy is the politicians, the ministers, the Knesset members and the bureaucrats who stymie reform, who think only of the short run, and who heap money on their cronies and on the powerful rather than adopting long-term strategic economic and social strategies and then sticking to them.