I have already written my concerns about the suggested changes to the national budget and the dangerous potential it has for Israeli families. Now that more information is available, I feel the need to sound the alarm even more on what I believe is potentially a very dangerous economic plan.
An article in Globes yesterday made a much more accurate attempt at calculating the cost of the proposed budget changes than I could in my previous article. According to their calculations, the cuts in child allowance, increase in income tax, increase in VAT, cancellation of expanded dental care, cancellation of college tax credits, and higher co-payments for prescription medicine, will cost the average Israeli family 7,800 shekels a year. How will YOUR family make ends meet with 7,800 shekels less per year? We all are already too familiar with hard working friends and family members who cannot cover their rent or put food on the table. There is simply no way that Israeli families can afford this.
Yair Lapid, our Finance Minister, was quoted in another Globes article saying:
This process hurts the working man, and I accept with love all the criticism on the matter, but it should be noted that, for the first time in years, the working man is not the only victim. I am no socialist, and I want to encourage business in Israel, but this time we also made cuts to the rich.
So what if the working man is not the only victim? Should we feel better that cuts in child allowance, increases in income tax and VAT apply to both the rich and poor equally? Should a family making 5,000 or even 10,000 shekels a month be comforted that other people will suffer along with them, or should they be outraged that the several hundred shekels a month they will lose out on may mean giving up food for their children?
Another Globes article says that according to Mr. Lapid, “in two years, Israel will look different.” I see a lot of truth in his statement, but while his comment sounds like one of optimism, I see the potential of a very dismal economic future in Israel if these plans are carried out. According to the Central Bureau of Statistics, there were 1.77 million families living in Israel as of 2009. If the average Israeli family will lose 7,800 shekels a year, that is 14 billion less shekels that the Israeli public has to spend. That is a massive amount of money to take out of commerce. When consumer spending goes down, businesses suffer. When businesses suffer, they lay off workers, cut salaries, raise prices, and even close down. While the government may temporarily plug the budget hole with these painful measures, the reduction in tax revenues from less employees and less commerce will, in my opinion, potentially cause a new hole in the budget that will need to be filled. Does that mean two years form now they will come back with more cuts?
The only long term solution to our economic situation is to change budgetary priorities to create business, create jobs, and grow the tax base so that the “pie” is bigger. In the meantime, we must find solutions to reduce the catastrophic impact these changes will have on our middle and lower income families.