Earlier this week, the government approved a welcome program of grants for reserve soldiers. Prime Minister Benjamin Netanyahu, Minister of Finance Bezalel Smotrich, and Minister of Defense Yoav Gallant rushed to take credit with announcements to the media. In answer to the question where the government was going to find the NIS 9 billion to finance the program, Smotrich said dismissively: "This is the anchor for the 2024 budget that we will present."
Not three days have gone by, and it emerges that Smotrich’s anchor has not managed to take hold. The Ministry of Finance fears a fiscal deficit blowout to 6-7% of GDP because of the consequences of the war, but the government opposes painful measures to bring the deficit within bounds, such as cuts to coalition party spending or higher taxes. So not enough money is left for the justified grants for the reservists.
The Ministry of Finance found a solution. But it’s one that no-one wishes to take credit for. This time around, Netanyahu, Smotrich and Gallant have been reticent indeed. Of all people, it was actually Histadrut (General Federation of Labor in Israel) chairperson Arnon Bar-David who was sent to inform the public that every salaried worker in Israel will contribute over NIS 400 from their pay to finance the government’s program, by foregoing one day’s "recuperation" money (an element of the wage system in Israel).
What is Bar-David’s interest in agreeing to such a thing? The Histadrut chairperson says that in the understandings he reached with the Ministry of Finance he managed to avert tough measures such as abolition of the tax break on advanced training funds (a form of tax-free saving) and pensions, and he blocked the intention of freezing the rise in the minimum wage.
Bar-David did oppose these measures, but he is boasting about a result that might very well have been achieved without him. Smotrich, and even more so Netanyahu, oppose cutting tax breaks. As for freezing the minimum wage, a proposal actually raised by Dubi Amitai, chairperson of the Israeli Business Sector Presidium, it has still not been completely ruled out by all the relevant people at the Ministry of Finance.
The NIS 400 shekel a head contribution, agreed between the Ministry of Finance and the Histadrut, is supposed to provide NIS 2 billion for the reservist grants. But it could equally be said that the workers’ contribution will finance the coalition party funds or some other expense. True, the money collected will go to a special fund for the reservists, but money has no smell. NIS 2 billion collected from the working public are NIS 2 billion less that will be cut from places from which they could well be cut.
Smotrich has said more than once lately that there’s enough money to go round, but he has agreed to cut less than NIS 3 billion of the NIS 8 billion coalition money in the 2024 budget. Cancelling the coalition money now would finance almost all of the reservist grant program, without taking directly from the working public.
The financial aid to reserve soldiers and their families is one of the most justified items in the government’s plan for revising the 2024 budget. The problem is that this is not how it should be financed. It could be argued that in any event the public will pay the bill. After all, the state budget mostly comes from taxes. But the new reservists "tax" that it has been decided to impose on the working public is distorted in several ways.
First of all, this is a regressive tax. Those on low incomes will pay more than those on high incomes, and not just relatively, but in absolute terms. A recuperation day is worth up to NIS 471 net for a worker on the minimum wage. The higher the salary, the more the benefit is eroded by higher tax brackets, and its net value decreases.
Another criticism is that the burden will fall entirely on working people. The alternative of raising the rate of VAT, for example, would distribute it among the whole population, but Netanyahu has vetoed that.
Nor have the reservists themselves been exempted from financing the reservist grants. Some of them have been jokingly telling a comrade, "The simplest thing is if you give me NIS 400 and I give you NIS 400."
Published by Globes, Israel business news - en.globes.co.il - on January 11, 2024.
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