Trajtenberg Committee Recommendations May Run Aground Due to Funding Shortfall

Anyone hoping that the cost of living will fall drastically right away following the Committee recommendations will be disappointed. The committee proposed a number of important reforms, but implementation will take time.

Israel's economic growth is not fairly distributed to all of its citizens, Prof. Manuel Trajtenberg, the head of a governmental committee on socioeconomic change said yesterday, adding that despite the many security threats facing Israel the social security of its citizens was as important as its military might.

But anyone hoping that the cost of living will fall drastically right away following the Trajtenberg Committee recommendations will be disappointed. The committee proposed a number of important reforms, but implementation will take time.

Netanyahu and Trajtenberg - Government Press Office - September 2011
Government Press Office

The committee recommended marketing 200,000 housing units over the next five years. It is also expected to take five years to implement the compulsory education law from the age of three, the long school day and to build more daycare centers.

The problem is that implementation needs funding and funding frequently depends on Knesset recommendations. Public protest can spur MKs to pass laws approving the committee's recommendations by 2012 - but if there is no money, or after the next Knesset election, if it is moved up, the cabinet might freeze some of the moves.

Earlier yesterday Trajtenberg submitted the final findings of the panel he headed, which stipulated a list of economic measures to be taken at a combined cost of NIS 30 billion over the next five years.

Among the committee's main recommendations were providing free education from the age of three, rather than five; making significant cuts to the defense budget and raising individual taxes on the wealthy as well as corporate taxes. The panel also called for housing reforms in order to make home ownership more accessible, stricter enforcement of labor laws and the expansion of antitrust regulations.

"We were entrusted with a task that looked totally impossible," Trajtenberg told reporters at a press conference he convened yesterday. "A committee cannot bring about change, but it can lay strong foundations from which a more just society can grow for the benefit of all its citizens," he said.

The recommendations were presented as a five-year plan, slated to start next year. Some of the NIS 30 billion budget for the program would come from cutting the national military budget.

"It's not easy to cut the defense budget, in light of the threats surrounding us," Trajtenberg said.

"However, Israel's social security is as important as its physical security," he added, saying that the report he helped author was a step toward "finding a new balance between those two factors."

His panel also proposed giving income tax credit points for the fathers of children up to three. The recommendations placed great emphasis on the needs of young working people, Trajtenberg said.

Not all of the committee's proposals are new. Some relate to existing legislation that has not been implemented such as free education from the age of three - a law for this was passed in the Knesset, but implementation has been blocked by successive Economics Arrangement Bills, supplementary legislation to the state budget.

Other recommendation will require new legislation, which means they will face a battle in the Knesset and cannot simply be waved into existence by Prime Minister Benjamin Netanyahu and the socioeconomic inner cabinet.

Panel members recommended continued fiscal responsibility - they explicitly called for maintaining a low budget deficit - together with increased state spending on civilian needs. It advocated capping the annual rise in defense spending at 1.3 percent and cutting debt servicing costs, by reducing the debt to GNP ration.

Israelis see some fellow citizens getting rich through compensation that they have not necessarily earned, Trajtenberg told the news conference, "and this pains it and feeds a sense of injustice." The public also sees a broad segment of the population that is not carrying its share of the burden in employment, national service and in paying taxes, all of which reinforces the sense of injustice.

Trajtenberg was interrupted twice during his presentation by protesters, including young Meretz party activists who shouted from outside the room where the press conference was being held. Trajtenberg said he understood the protesters. "This shouting is legitimate," he said. Outside the news conference, at Jerusalem's Van Leer Institute, junior university faculty members staged a protest over their employment terms.

Average wages have not kept up with Israel's GNP, Trajtenberg told reporters. He also noted the increase in the cost of goods and services. "Some of the price increases are the government's responsibility, some are due to failings of the regulatory agencies, and of course some are the result of monopolistic power in the markets, which has grown stronger over the past decade, and impediments to foreign competition," he said. Trajtenberg also pointed the finger at the public sector, where he said "anachronistic work arrangements limit the government and its effectiveness."

For his part, Israel Antitrust Authority chief economist Shlomi Parizat, who headed the panel's subcommittee on competition and the cost of living, said the primary factors influencing the cost of living where a failure of economic regulation, the absence of sufficient foreign competition and the concentration of economic power.