Reform Lite

The finance minister has no luck. The moment he finally calls a press conference to show that he is a serious, courageous, finance minister who implements reforms, a terror attack occurs in Eilat and media attention gravitates south.

The truth is, these are not real reforms, but rather a vision for instituting mandatory pensions in the future, an "experimental program" to institute a negative income tax in some parts of the country, and proposals to increase the tax value of company cars and widen tax brackets.

These reforms do not require sacrifices from the public or engender powerful opposition from wealthy interest groups. Rather, they give a little money to the public, and therefore they will be easy to pass - except for raising the tax value of leased vehicles, and the last word has not yet been said on that topic.

Abraham Hirchson is tired of being portrayed as weak finance minister, who does not initiate reforms and was unable to get the reforms in the Economic Arrangements Law passed. He really does believe that poverty and social gaps must be minimized, and this is good politically, too. Luckily for him, the economy is in excellent shape, growing quickly, with tax revenues rising, so he can get his "reforms," which increase the burden on the budget, passed. These plans do not put the "fat man" (the public sector) on a diet; they even make him bigger, and also increase bureaucracy, and therefore do not contribute to growth. And, as we already know, growth is the main precondition for new jobs and a decrease in poverty.

The most important reform, the negative income tax, was opposed by the treasury's budgets division. The first Bachar Committee, appointed a year and a half ago, vetoed the idea. The second Bachar Committee (which later became the Yoram Ariav Committee, when Ariav replaced Bachar as treasury director general) approved it.

But the formula the treasury adopted would require every family to submit its salary slips to the Tax Authority and then receive a retroactive rebate every quarter. That is very bureaucratic, and not at all certain to encourage work. Moreover, those who receive this benefit will become dependent on the government, and that is bad. The weakest will not even know how to fill out the forms.

In addition, marginal tax rates will be very high at the transition point between receiving benefits and paying taxes, so there will be no incentive to work extra hours to get ahead. Amir Peretz may be right that it would be better to raise the minimum wage instead of all this mess.

Mandatory pensions are the right step for a million workers whose employers do not contribute to their pensions. But they still do not exist.

Doubling the tax value of car usage, in exchange for income tax reductions for the middle class, is easy to implement. But this is not reform; it is correcting a distortion.

Now, what remains to be seen is how much of Hirchson's plan survives the Knesset - and whether it will really narrow gaps and cause more people to enter the job market.