The Bottom Line / Release the Automatic Brake

In 2000, the economy grew at the remarkable rate of 7.4 percent despite a poor final quarter. However, that same year the tax burden actually grew heavier.

In 2000, the economy grew at the remarkable rate of 7.4 percent despite a poor final quarter. However, that same year the tax burden, surprisingly enough, actually grew heavier. It transpires that when the economy grows, the tax burden always gets larger, since tax brackets are not revised; and when wages increase, the public faces higher tax brackets which in turn raises the tax burden.

This tax increase is a sort of "automatic brake" that halts growth, since when the tax burden increases, the desire to work and earn more grows less.

This year, the treasury decided not to repeat the mistake of 2000, but rather to be on the lookout constantly and cut taxes so that the tax burden does not increase as growth is renewed. No one wants an "automatic brake;" they would prefer encouraging and pushing forward growth.

That is why, whenever it becomes clear that the income from taxes is higher than originally planned, the treasury reduces income tax, or VAT, or purchase tax; and the public understands that its fixed income is going up, and therefore, it increases consumption which encourages activity.

We must not forget that the basis for cutting taxes is cutting government expenditures. New data collected by the treasury indicate that, surprisingly enough, during the years that appeared to be the years of the great cuts (2001 and 2002), the budget not only did not grow smaller, but in fact increased.

The 2001 budget was, in real terms, 4.8 percent larger than the 2000 budget, and the 2002 budget was, in real terms, 1.4 percent larger than that of 2001.

The first time the budget really dropped was in 2003, by a modest 0.2 percent. According to plans, there will be an additional modest decrease in real terms this year, and there will also be 3 percent growth.

That is the reason Finance Minister Benjamin Netanyahu will be obliged to continue the process of dropping tax rates, so that the "automatic brake" will not be reactivated.

Competition is in the air

Starting June 15, Israir will begin operating three weekly charter flights to New York, and therefore, will compete with El Al, which effectively has control of the line.

Israir's prices will be $100-150 lower than those of El Al, and therefore, it is logical to expect El Al to drop prices as well.

The competition once again turns attention to efforts made by the Borowitz family to acquire El Al and to unite it with Arkia. If that happens, we will get a giant that effectively controls the entire aviation branch from top to bottom: regular flights abroad, internal flights, charter flights, travel agents, and air services supply. The result will be less competition, higher air fares, and poorer customer service.

The authorities, therefore, need to act to prevent such a giant from taking shape in front of our eyes: to force the Borowitz family to sell Arkia and have nothing more to do with internal flights, to forbid any collaboration between the three companies, and to agree on a policy of open skies, as is currently happening in Europe.

This is the only way to protect the Israeli consumer, to lower the price of airfares, and to improve service.