Scorched Economic Earth

Yair Lapid promised that things would be better in the economy in a year and a half. He actually made things much worse.

The government has failed in its handling of the economy, and not because of its brief term of office · The regulation is burdensome and prices are rising. And our ministers? They’re busy with VAT tricks and minimum wage · Two years later, a situation report

A bad political legacy. Lapid and Bennet. Photo: Flash90

The previous elections of 2013 commenced because Netanyahu and his other coalition partners decided that they can’t agree on a budget in which too large cuts were made or too heavy taxes on the public. Thus the 2013 elections revolved around largely around economic issues, the first elections since the social protest of 2001.

The 2015 will see the government elected in 2013 having run the country for two years. The clouds of security dangers are gathering. The ego wars between politicians are going on as usual. Nevertheless, it is the socio-economic agenda which may end up occupying most of this election campaign, especially since the government and the Treasury Minister failed to deal with the cost of living, the rising cost of housing and failed to increase economic competition. A chronicle of false promises and fatal errors has led the Israeli economy to a standstill and the average Israeli citizen to suffer real problems.

A Government Stranglehold on Business

In November, the Ministry of Economy published a report entitled “Removing Barriers in the Field of Imports.” The report details how the government created barriers to its barriers, regulations to its regulations, which prevented the entry of new economic players and abandoned the field to lack of competition with all its attendant inefficiencies and abuses. The report also took note of how regulators set goals and limits without any consideration of the good of the economy or the public, thus abandoning the market.

Two months previously in September, the Prime Minister’s Office published a report on regulators. The report details the means of dealing with the huge number of government regulators, 197 in total according to the report (!). Thus do government office regulate and limit almost every economic field, all this while throwing huge sums of tax money around and paralyzing the business sector which drives the economy.

The Prime Minister Office’s report joins international reports like that of the World Economic Forum, published last September, which ranked Israel at 116 out of 144 in terms of bureaucratic burdens. This report is actually kind to Israel compared to an OECD report published last February, where Israel is ranked only second to Turkey as a country whose regulation limits and paralyzes competition.

The problem killing businesses: regulation and taxes. Photo: Flash90

How to Raise Food Prices

We have already explained the folly of the Food Law in the past, as well as Yair Lapid’s old and false promise that “things will be better in a year and a half”. In addition to the lack of entrepreneurship, Israel has seen a rise in 1.1% in the price of industrial food and 5.1% in the price of agricultural products. According to the Israel Bureau of Statistics, food prices rose 0.7% in last month alone. To these discouraging figures we can add a report by the Knesset Research and Information Center, which states that Israeli food prices are 25% higher than in EU countries.

This rise in prices and lack of competition is compounded by the rise in the minimum wage, which is expected to also drive up food prices. According to reports by the ‘Supersol’ chain, 70% of its workers earn minimum wage, and a rise in that wage will require an additional annual expenditure of 128 million NIS. The ‘Mega’ chain employs 3,500 workers at minimum wage, and a rise in that wage would mean an additional annual expenditure of 40 million NIS. The same is true of Rami Levi – 14 million NIS, Victory – 6.5 million NIS and Tiv Ta’am – 7.6 million NIS.

The costs which the government imposes on them through hiking the minimum wage constrains both their ability to compete with each other and their profit-seeking, which will lead pretty quickly to the chains passing on the costs to the customer – either through rising prices or avoiding cutting prices. The public at large, poor included, will thus have to bear the costs of this ‘social’ policy.

Small Businesses Collapse

“The Yesh Atid Party is with the small businesses,” crowed the previous Yesh Atid election platform, but in practice the Treasury Ministry continues to abuse said businesses. The data shows the same story: more businesses are closing than are being opened, and subsequently less jobs are made available.

In 2013, 41,000 businesses in Israel were closed, and in 2012, for every 10 businesses that opened 8 closed, according to the President of the ‘Office of Organization of Independents and Businesses in Israel’. He also added that “focused government treatment of the daily troubles of small businesses is needed – among other things by reducing regulation and bureaucracy – but the government is not acting on this and thus leaves a black cloud over the long-term survival chances of businesses.”

The small businesses, which create 77% of the new job openings in the economy and created 80 thousand job openings in 2014, are in crisis due to heavy taxes, VAT and company taxes. 63% of the smallest business owners are considering closing up shop, according to an Economy Ministry report on small and medium businesses, 26% argued that the problems are due to unfair competition and 13% claimed that burdensome bureaucracy and heavy taxes have made them think of closing up shop.

The reforms didn’t help. One of tens of thousands of small businesses. Photo: Flash90

What about reducing the gas tax?

Another Yesh Atid promise was to reduce the number of ministers and abolish the ‘Minister Without Portfolio’ which Lapid called “a moral and social corruption”. While the number of ministers was indeed reduced, the actual budget savings were miniscule because the actual number of government offices was not reduced at all. For instance, the budget of the office for Jerusalem Affairs was 23 million NIS in 2013-2014, and this was raised by 10 million NIS in the 2015 budget proposal. Thus did Lapid continue to fund unnecessary government offices. If Lapid were true to his word, he would abolish all these unnecessary offices and save the country many millions of shekels wasted on directors-general, advisors, offices and legal advisors.

The tax burden is scaring away investors and leaving the private sector in the lurch, which has already been buried under the weight of taxes and regulation. As Treasury Minister, Lapid wasted hundreds of billions of our taxpayer dollars. Rather than invest the money in reducing the tax burden on businesses, the stock market, and companies, and provide credit for small businesses, Lapid preferred to invest the money through the public sector. The enormous budgets of the Transportation Ministry continued to become more bloated, and the same is true for the boondoggles of Education Ministry reform and the government companies.

Lapid is a grave disappointment with zigzags, unsuccessful reforms. The Treasury Minister who declared “I am not a socialist”, failed to understand the important principle of capitalism: entrepreneurship. Rather than encourage it, he crushed it. Rather than release the public’s money back to the public by reducing taxes and government intervention, he increased government involvement in the economy, dissuading both investors and consumers from increasing their activity.

Instead, Lapid invested the public’s money in the bloated public sector, which sucks up the money in salaries, pensions and general bureaucratic waste. Take the Education Ministry, whose budget is 40 million NIS, 22 million of which goes to employee salaries. Or the Defense Ministry, which spends more than 27 billion NIS on salary and pensions, and the list of additional public sector workers absorbing these resources is long as the Nile.

If Lapid was truly not a socialist, he would not have joined forces with the Histadrut to kill important reforms. If he truly cared for the average citizen, he would have worked towards a thorough reform of the system of banks, which meanwhile continue to charge heavy fees and enjoy cartel status. He would reform the Israelis HMOs which are drowning in billions of shekels of debt. He would reform the Israeli Post Office and other government companies which continue to excel at inefficiency, waste and nepotism. Yair Lapid would bet his life on a zero VAT law, but he did nothing to reduce the gas tax, which drives up the prices of everything. He did nothing to create competition in the field of public transportation.

It’s now a year and a half later, and life is actually much worse.

English translation by Avi Woolf.

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