We all know that the Israeli government currently operates at a significant deficit. We all know that changes need to be made. We also know that a significant amount of hard working Israelis are already struggling to keep their heads above water. Even so, many of us are still willing to sacrifice a little bit more for a brighter future. Still, I know I was not the only one horrified while reading about the latest budgetary changes proposed by the Finance Ministry, run by our new Finance Minister, Yair Lapid. Mr. Lapid’s Yesh Atid party campaigned on the promise of reducing the cost of living and strengthening the middle class. The proposed changes may do just the opposite.These changes are not just unpleasant or difficult. In my opinion, if approved, these changes may be a financial death blow to hard working Israeli families.
Here are a few of the main points that were proposed and my estimation of their impact;
- A change in child allowance to a flat rate of 104 shekels a month per child. Currently a family with 3 children receives 701 shekels a month. It appears this could be a loss of 389 shekels a month for these families, more if you have more children. (see Betuach Leumi’s child allowance calculator for current rates)
- An increase in income tax of 1.5 percentage points across all tax brackets. That could be up to a 225 shekel reduction in net income for a family that brings in 15,000 shekels a month. (Yes, I know many families can only dream of 15,000 shekels a month.)
- An increase in VAT from 17% to 18%. This adds another 75 shekels in cost for a family that spends 7,500 shekels a month on taxable items.(Previous articles suggested this 18% tax would for the first time apply to fruits and vegetables (currently VAT exempt) making the impact of these costs significantly more severe.)
- A cessation of funding of after school programs for children aged 9 and up.
- The imposition of national insurance payments and health tax on non-working women. (Hundreds of shekels a month for a family with one bread winner??)
Overall, it seems these changes could cost many Israeli families more than 600, maybe even far more than 1,000 shekels a month. This does not even touch on the expected 5.5% increase in electricity coming soon. How are middle and low income Israelis expected to survive? Many of us are all already familiar with hard working professionals who cannot pay rent or put food on the table, let alone dream of bettering their situation. How much more can we trample on those struggling to get by? If the Finance Ministry makes these changes, many more Israelis may be pushed into poverty. Many other hard working families may fail to make ends meet.
I am not an economist, but it seems to me that not only are some of these measures harsh, but they may also be counter productive. If Israeli families have to cut their spending significantly, won’t that mean less VAT and other business taxes paid? Won’t it mean that businesses that are already struggling may loose a significant amount of sales leading to layoffs and even closure? If families loose their access to after school programs won’t they have to choose between paying hundreds or even thousands more shekels a month for child care or even forcing one of the parents to give up employment to care for their children? How can the loss of tax revenue from lower workforce participation and struggling businesses be good for the economy?
What is needed instead is some creative thinking. Maybe Instead of cutting child allowance for everyone, why not cut them completely for high income earners while making smaller cuts to middle income earners and maybe even providing a small increase to hard working Israelis who are in very low income ranges? Instead of changes that can hurt small businesses, why not legislate changes that grow the economy and increase tax revenues by encouraging the creation and growth of small businesses and the jobs they create? Instead of cutting after school programs for children, shouldn’t we do more to encourage stay at home parents to enter the workforce? These are just thoughts off the top of my head, surely professionals can come up with some feasible alternatives.
I don’t claim to have all the answers, but I do know that much more needs to be discussed and tried because we simply cannot squeeze any more out of Israel’s working class. There is no more to give. These are not changes most Israelis can live with.