The Bottom Line / Better a Shekel in the Pocket

If value-added tax goes up, that is bad. Journalists and politicians explain that it is a regressive tax, and the higher it is, the larger the gap between rich and poor. But if VAT goes down? That is also bad. Because when a rich person buys a new car, he pays a lot less VAT. But a poor person, who only buys bread and milk, only receives a few extra pennies.

This is how the socially minded always manage, under every circumstance, to put a negative spin on every event. It does not matter whether something went up or down, whether it was added or taken away; it will always be for the benefit of the rich and to the detriment of the poor, because that is what their ideology dictates, and to hell with the facts.

However, the truth is that decreasing VAT is a step in the right direction financially, socially and politically. It is a pity that the decrease stopped at 15.5 percent; it should have been to 15 percent.

Lowering VAT lowers prices, encourages economic activity and creates jobs. It is good for growth and employment. Lowering VAT is also a classic step toward improving income distribution. It reduces the gap between rich and poor, because the poor spend all of their income, whereas the rich save some of theirs. It also reaches the elderly, who do not work, and low earners, who do not pay any income tax. Therefore, the gap in net income, after taxes, will be lower after July 1.

The VAT reduction is also right from a political standpoint, because if Finance Minister Abraham Hirchson had not taken the NIS 3.3 billion and returned it to the people of Israel, the politicians would have pressured him to waste it on all kinds of showcase plans - and always, under every circumstance, it is better for money to stay in the hands of the public than to be at the mercy of the politicians.

Never mind the facts

"The poverty of the Arabs and ultra-Orthodox is not their fault," economist Momi Dahan insisted this week at a meeting with industrialists. "It is an ethical and statistical mistake to blame them for their poverty," he added.

With regard to Arabs, Dahan's claim is mostly correct. They suffer discrimination in education and in the job market. But the ultra-Orthodox? They deliberately choose to be poor. They do not learn professions that will help them in the job market - neither mathematics, science nor English. Ultra-Orthodox men choose not to work. Two-thirds of them do not work at all, but instead spend their time in kollels (yeshivas for married men), and they have eight children on average. So how can they say that their poverty is not their fault?

But Dahan chose a target and then drew a ring round it. He does not want to be confused by the facts.

First International wants more

The First International Bank has decided to invest in nonfinancial companies. Its first purchase, made this week, was 2 percent of Cellcom. The bank's CEO, David Granot, said that these will be strictly financial investments, whose aim is to "diversify our sources of income and distribute our risks."

On the face of it, Granot's aims are reasonable. When the bank has a good year, nonfinancial companies might have a bad one, and vice versa. In other words, the standard deviation of the profits will lessen, and the bank will be less vulnerable.

However, this is a correct policy only for the CEO, and maybe for controlling shareholder Zadik Bino, who want to lessen their personal risk. It is not right for shareholders from the general public.

These shareholders do not need the bank to distribute its risks. They can buy their own shares on the stock market, and build their own diversified portfolio. They do not need Granot and Bino for this. They need them to maximize returns on the bank's operations. This is their expertise.

They should not waste their time and managerial efforts on building an investment portfolio; it will only hurt the bank. This is not their field of expertise, and it is not why the public buys their bank's shares.