Israel Matzav

Israel's 'Arab spring'?

You would never know it from reading my blog or from reading much of the English language online media, but the headlines in Israel for the last few days have nothing to do with the 'Palestinians' or the other Arabs or even with Norway. Most of the headlines of late deal with 'tent cities' that have been popping up all over the country in response to our housing shortage, an issue I discussed briefly here, and a four-month old set of doctors' sanctions (yes, even doctors go on strike in the socialist paradise), which I find too confusing to even discuss, since I am not willing to follow it full time.

The LA Times is referring to this as Israel's 'Arab spring,' implying (probably correctly) that the so-called Arab spring was never really about democracy, but about the region's economy.

Israel's economy is strong, the public is constantly told; the country has money, the economy is growing.

Then why is everyone angry? First of all, because they can be. A quick look around the neighborhood has reminded people they have power and can use it to rework priorities and redistribute resources.

Beyond that, some numbers (from a story by Sever Plocker, a financial journalist): Over the last five years, the average income in Israel has increased by 17% and food prices by 25%. Water rates have gone up 40% and gasoline by 23%. The average apartment price has gone up 55% and rent by 27%.

That last item, housing, sparked the protest sweeping the country. But it's not only the last five years, Plocker writes. Real wages haven't increased since 2000, while companies traded on the stock exchange have grown by 300%. The rich are getting richer, the middle class is treading water and "this unusual prosperity has passed it by," Plocker noted.

"The government's economic policies have resulted in 6,000 millionaires and 6 million beggars," said Shimon Peres of Benjamin Netanyahu's economic policies, coining what has since become a classic Israeli catchphrase, "piggish capitalism."

That was in 2004. Then-finance minister Netanyahu is now Israel's prime minister -- and years of economic policy have just exploded on his shift.

Israel's former economic incarnation was as a welfare state of sorts with heavy government involvement and ownership of most major companies. Later, governments began privatizing assets, cutting cumbersome and wasteful bureaucracy but placing prime public assets in a small number of private hands. Opposition leader Tzipi Livni once headed the authority for government companies and in her words, "privatized everything with a pulse." She's since repented, but the effect of that ideology lingers. Increasingly, public services were privatized and outsourced, government budgets cut and the free-market economy reigned supreme.

Like the ideological divide between the Federalists and anti-Federalists, the debate is now over the degree of government involvement. Netanyahu, say observers, a free-economy ideologue, is beginning to understand its limitations. And the public wants the government to be the responsible adult and not leave them to the mercy of the market.

It's a protest against the last three decades of extreme economic neoliberalism, said one student leader this week, time for the pendulum to swing back to a balanced midpoint.

Read the whole thing.

I keep reporting growing GDP (gross domestic product) and low unemployment numbers (that hit a record low this past month) and telling you that I don't believe them. Let me give you some idea of why. As you read this, please keep in mind that much of Israel's economic future is dependent upon high tech.

1. Mrs. Carl's high tech company laid off a third of its employees in January.

2. Daughter #2, child #4 reports that in her double major in computer hardware and software, only one person in the last two graduating classes has found work - and that person dropped out of the last year of the program (giving her a degree in software only) in order to keep that job. The same daughter, who is one of the top students in the program, also reports that no one in her class has found a summer job yet (exams ended two weeks ago). (If anyone would consider hiring her, please drop me a note and I will arrange for her to send you her resume).

3. Last month, a close friend whose company had just been acquired by someone in the US reported that his company laid off two thirds of its employees, including all of the senior employees. My friend, who is over 40, has little prospect of finding another job in high tech in Israel, and is looking into other career options.

4. In my own field, I can tell you that our fees are squeezed, and since much of my income is paid in dollars, the overly strong Shekel (currently about NIS 3.40 to the dollar after being NIS 4.20 two years ago) is killing me.

It goes on and on, but you get the picture. Now I am going to add to it for you.

When the government privatized (and it has not privatized everything - it has not been able to privatize the Electric Company and the ports, among others), it sold them off to controlling shareholders rather than to the public itself. The result is that a few people got very rich.

Now, look at the numbers Sever Plocker rattled off when the Times interviewed him. The number that's missing there is taxes. The government has made a big deal about cutting our income taxes over the past 3-4 years. It's all a lie. While they have cut our top income tax rates, they have left the regressive Value Added Tax at 16% of every good and service you purchase. We continue to pay nearly 18% for National Insurance (and get FAR less out of it), and we pay about 5% of our income as a health care tax.

For those who receive a car from their employers or own a business and own a car as part of the business, the government has increased the amount of income they impute to you for the use of the car. When you add that to the cost of gasoline, a car has become an extremely expensive item to own (which is why we have been doing without one for the last two months). My accountant tells me that this has changed for car model years after 2010, but with customs duties for cars still at 116% and up, buying a new car here is not an option for a lot of people.

Here's a video (sorry - Hebrew only) that discusses Israel's 'Tax Freedom Day' which was June 29 this year - one week later than last year, which was the first time we ever had Tax Freedom Day before July. By comparison, the US was April 3, Canada was June 6 and England was on May 30. Ridiculous, isn't it?

Let's go to the videotape.



The government could cut spending if it wanted to. But it's much easier to just continue the welfare state. And unfortunately, the current demonstrations are only going to push us back in that direction.

Labels: Israeli economy, your taxes at work

posted by Carl in Jerusalem @ 10:26 AM