Israel Matzav

The end of the welfare state?

There was a fascinating article in yesterday's Wall Street Journal about some of the social changes going on in Israel. Unfortunately, the article was in the part of the Journal that is not accessible without membership, but you can find a copy of it here.

(Hat Tip: Nathan in Teaneck, New Jersey)

I have a number of observations about the article.

First, on the whole I believe that capitalism is a good thing for Israel. The problem with the socialist welfare state is that - as in George Orwell's Animal Farm, some people were always more equal than others. To a great extent that kind of inequality still persists in Israel. But it's a remnant of the welfare state and not caused by capitalism.

We have one of - if not the largest - gap between rich and poor in the Western world. That's not a byproduct of capitalism. It's the result of a confiscatory tax system that punishes you for working harder and rewards those who start out with a lot of money in the first place. For example, the graduated income tax system hits a marginal tax rate of 47% at NIS 11,000 per month (NIS 4.26 = $1 as of yesterday), but capital gains in the stock market are tax free. Value added tax adds 15.5% (it's been as high as 18% in the sixteen years I have been in Israel) on to every good or service you buy and turns every one who runs their own business (including both yours truly and Mrs. Carl) into a tax collector. The lack of a universal income tax return filing requirement means that people can (and do) cheat the taxman. (We used to think this happened only among 'our crowd' until eldest daughter went off to university and came home and told us that we were the only ones among her university friends' parents who were not cheating on taxes). The result is that the economy is controlled by a small number of families. And Israel's Tax Freedom Day in 2006 was July 26. Only Sweeden's was later. (In the US Tax Freedom Day was April 30).

One of the things the article discusses is the health care system. The health care system was doing beautifully until 1995 when the Histadrut - General Federation of Labor's Kupat Cholim Klalit was on the verge of collapse. So the government introduced 'universal health care' for which we are taxed and required the sick funds to provide a minimum 'basket' of services. The result is that all of the health funds are basket cases, we now pay more in taxes than we paid for health insurance premiums, we get less in return, and those who can afford it (and many who cannot) carry expensive private insurance so that if God forbid they need it, they have it.

It's funny listening to the moshavnikim complaining about the suburbanites who have moved onto 'their' moshavim. The land was given to them by the Israel Lands Authority (read - by the taxpayers), they sold it at a huge profit and now they are complaining that the people who bought the land aren't idealistic enough? Sounds like killing your parents and then throwing yourself to the court's mercy on the grounds that you're an orphan. No one forced them to sell that land - except that the government refused to continue financing their excessive spending.

The army is becoming more and more religious - even if the statistics cited are exaggerated the trend is definitely there especially in the officers' corps and in the combat units. And Tel Aviv, which is most definitely InMyBackYard, has become full of draft avoiders. I posted about that same statistic last summer.

The blogger at whose site I read the article, Am Echad, is convinced this is good for aliya (immigration of Jews to Israel) because people will see that they can live the American (financial) dream in Israel. I disagree. I don't think it's a bad thing if the Israeli economy becomes more capitalist. But I don't think people should come on aliya expecting to fulfill the American (financial) dream. If that's why you're coming, it's much easier to do that in America.

Previously at Israel Matzav:

Studies in Despair

IDF v. The National Religious Community

posted by Carl in Jerusalem @ 5:12 PM