They're Not So Poor After All

Israel's black economy is one of the largest in the world - and that's where the lost billions are hiding.

In the late 1990s, then-Finance Minister Avraham Shochat tried to pass a law in the Knesset taxing large inheritances. The bill was opposed by many of Israel's rich, and that was understandable.

But one day, Shochat received a phone call from a United Torah Judaism MK, who told him, "We opposed it, too." "What do you have to do with inheritances?" the surprised Shochat asked. "After all, you represent people who have a hard time making ends meet, and they certainly don't have millions."

The MK responded: "In our circles, it's accepted practice for the parents to give every young married couple an apartment." "How's that possible?" Shochat shouted. "After all, you have eight children on average. Where does all the money come from?" "Don't ask about what is beyond your comprehension," said the religious MK, undoubtedly with a smile on his face. The tax was not imposed.

I remembered this story recently when I read an interview with the outgoing director general of the National Insurance Institute, Esther Dominissini, who of course was asked about the gaps in society and the poverty of the ultra-Orthodox and the Israeli Arabs. Dominissini responded surprisingly: "Among the ultra-Orthodox and Arabs there is a statistically significant underreporting of income. Poverty among them is far lower than what is published."

Wait a minute, what's happening here? After all, "what is published" is what the NII publishes. Does that mean they've been pulling the wool over our eyes all these years? This is what is known as "the retiring director general syndrome." It happens to our director generals in the public service and to senior army officers. The moment they leave, they change the disk, and everything they say is the opposite of what they once said. Because the world is flexible and the public's memory is short.

Dominissini added that, in view of the faulty income data on Arabs and the ultra-Orthodox, the NII did a survey on families' spending, which was more reliable than a survey on families' income. It turned out that Israel's poverty rate is 40 percent (! ) lower than the figure we're familiar with.

"I believe that only 11 to 12 percent of households are living below the poverty line," said Dominissini - this destroys the bleak picture we've always been shown that Israel's poverty rate is 20 percent, the highest in the West. "With a poverty rate like this, Israel is no longer at the top of the list. And plenty of poor people in this country choose by their own free will to be poor," she concluded, hinting of course at the ultra-Orthodox.

Shochat's surprise and Dominissini's revelation teach us that the time has come to stop looking under the lamppost for the solution. The time has come to stop trying to impose additional taxes and fees on the same one-third that bears the burden - those who work, serve in the army and pay real taxes. That is, the salaried middle class. The time has come to crack down on those who evade tax, from all parts of the population, especially the Arabs and the ultra-Orthodox. It's time to draw from them the millions that belong in the state coffers.

The Trajtenberg Committee on socioeconomic change agrees; it recommends that we collect taxes more thoroughly. This is based in part on a 2007 World Bank report revealing that this country's economic activity is 23 percent higher than its reported economic activity. That is, Israel's black economy is one of the largest in the world - and that's where the lost billions are hiding.

But it's impossible to carry out a law-enforcement revolution without a full-time boss at the Tax Authority, and it's amazing to discover that for months we haven't had one. We don't have one because Finance Minister Yuval Steinitz wants to appoint a director to his taste; he's not willing to accept the recommendation of the search committee that chose the authority's Moshe Asher.

The grave part of the affair is that the High Court of Justice told Steinitz long ago to get this matter settled, but Steinitz has avoided doing so. Now he's busy trying to persuade the other ministers to vote against the appointment, and he himself plans to vote against it.

Let's hope Steinitz comes to his senses, understands that he's making a mistake and votes on Sunday to appoint Asher head of the Tax Authority. That way, the authority's rough period will come to an end and Steinitz will be able to help the new director put the war on the black economy at the top of his agenda. The time has come for the middle-class salaried workers to stop being the only cow milked in the economy.