The plan presented by Prime Minister Naftali Bennett and Finance Minister Avigdor Lieberman is the government’s first response to the public outrage at rising prices and taxes. The decision to direct more money to the public and to increase disposable income is an important one, but the plan also reflects a very specific worldview.
Finance Minister Lieberman was quick to clarify that the government will not stray from the deficit plan and that there will be no budget cuts to finance these economic steps, which are expected to cost four billion shekels ($1.2 billion). This might sound to you like magic – a plan without any drawbacks. But those who have been paying close attention to the budget know that over the last two years, despite the economic impact of the coronavirus pandemic, government tax revenue has exceeded its target amount by 25 billion shekels ($7.7 billion). Israel’s deficit is lower than anyone expected.
To justify the fact that 25 billion shekels went to reducing the budget deficit rather than providing for social needs, the Finance Ministry claimed that the excess tax revenue was a fluke that came as the result of increased activity in the hi-tech and real estate industries. But in his remarks at the recent press conference, Lieberman revealed that the jump in tax revenue was not a one-time phenomenon. When asked how the government would finance the new cost-of-living plan, Lieberman responded that “in the next few days the tax revenue estimates will be raised, but the deficit plan will still be reduced.” In other words, the government’s coffers are filling up with cash, and Bennett and Lieberman get to decide what to do with it.
The previous Prime Minister, Benjamin Netanyahu, decided during his reign to distribute stimulus payments to all Israeli citizens, and received harsh criticism for including the wealthy in his plan. Critics asked “how can it be that Yitzhak Tshuva [a billionaire businessman] will get a stimulus payment too?” Now, Bennett has released a plan that will also disproportionately benefit the wealthy, but for some reason the critics are silent.
The most significant provision in Bennett’s plan is the inclusion of income tax credits for families with children between the ages of six and 12. Under this program, each parent in a given household will receive a tax credit worth 223 shekels ($69) per child in the age range. For example, a two-parent family with two children in the age range would be eligible for 874 shekels a month ($270) and 10,488 shekels ($3,235) a year.
But because this relief comes in the form of a tax credit, only families with two parents who both earn high enough salaries to incur a significant tax burden will enjoy the full benefit. Workers earning lower salaries and thus already shouldering a smaller tax burden will not benefit from this measure; it is aimed squarely at the upper-middle class.
In order to provide an answer for the working class, the plan offers an expanded work grant, also known as negative income tax. This grant is given to workers who earn up to 6,400 shekels ($1,974) a month, with some adjustments based on family size. This grant is not applied automatically, it requires workers to take the initiative to jump through various bureaucratic hoops to prove that they meet the strict criteria for receiving the grant.
Bennett’s plan offers a 20% increase to the size of this grant, coming out to approximately 800 additional shekels ($247) a year. This is less than a fifth of the 5,352 shekel ($1651) yearly value of even a single tax credit for families with young children.
In its announcement, the Finance Ministry included a presentation demonstrating the impact the plan will have on various families. The presentation offered a crystal clear picture of the absurdity of the government’s economic policy and priorities: a family with an above-average yearly income will receive 12,988 shekels ($4,006) a year, while a family with a below-average yearly income will receive 7,430 ($2,292) shekels a year. A single mother with two children will receive just 3,702 shekels ($1,142) a year.
Most of the provisions in the economic relief package, when viewed in isolation, seem like positive steps. The middle class will benefit from stimulus funds, even if the wealthy also receive them. Increasing subsidies for daycares and eliminating the excise tax on electricity are also important social measures. But taken as a whole, this program will continue to widen the economic gaps in Israeli society.
Prime Minister Bennett himself said that the relief package reflects “a particular set of values.” In Bennett and Lieberman’s plan, struggling workers receive less. The unemployed, the disabled, and the elderly are not even mentioned at all.
This article was translated from Hebrew by Sam Edelman.
