Middle Israel: Will anything change after elections, given budget deficit?

The good news is that the kind of black-and-white rhetoric that drove America’s most famous socialist was absent from our election season’s first economic press conference.

The even better news is that the Labor Party’s leaders emerged in that briefing as a trio of idealists who genuinely care for the weak.

The bad news is that in this heavily personalized election few seem to care much about programs and ideas. How many people even just remember, let alone care, that the pretext for this unseasonable plebiscite was a bill concerning ultra-Orthodox conscription? All people talk about is whether they are for or against Bibi Netanyahu.

Alas, the issues won’t go away, as all will realize the morning after we cast our votes, when the winner – no matter who that is – will face the yawning budget deficit that the conservative prime minister allowed his populist finance minister to brew.

Everyone knows spending has gotten out of hand, as the budget deficit nearly trebled over the year’s first half from NIS 7.8 billion in the middle of last year to NIS 21.9b., or 3.9% of GDP, by the middle of this year.

It was against this grim backdrop that Labor leaders Amir Peretz, Orly Levy-Abecassis and Itzik Shmuli introduced their program, a compilation of fiscal goodies with an aggregate price tag of NIS 30b., all of which reflects the three’s origins in the social periphery from which they emerged genuinely driven to help the poor.

Labor’s program is as brave as it is impractical. Then again, the housing crunch, the hospitals’ overcrowding, the income gaps, the elderly’s insecurity, and the rest of the problems that Labor’s blueprint discusses are real, and they fester not because of Labor, which has not won an election in two decades, but because of the ruling party, whose loss of power, whenever it will come, will reflect not its foreign policies but its social conceit.

THE PLAN Labor introduced Monday calls to extend free education to age zero; to spike the minimum wage from NIS 5,300 to NIS 7,300; to build 200,000 new apartments in highly demanded areas; to guarantee a minimum pension of NIS 6,000 for every retiree; to abolish basic goods’ value-added tax; to add every year 500 hospital beds; to make the disabled’s National Insurance allowances equal to the minimum wage; to raise the basket of state-paid medicines from an annual NIS 440 million to NIS 750m., and the list goes on and on.

Unlike a succession of their predecessors, Peretz et al. did try to point at the sources from which they would finance this social bonanza. Their formula is tiringly familiar and sadly unconvincing.

Retreating from the Likud’s political commitments to its coalition partners, as Labor suggested, will not cover even a fraction of its proposed programs, considering that the Likud coalition-deals cost an estimated NIS 9b. overall.

Another promise is to wage war on tax evasion. This vow’s suggestion, that the Tax Authority is not fighting tax evasion, is as unfounded as the illusion that there is some big treasure out there that our would-be Robin Hoods will simply unearth and then hand out to every leper and beggar.

Such is also the pledge to spike from 50% to 57% the marginal tax on monthly salaries of at least NIS 44,000. It has long been proven empirically that the rich are but a fraction of a developed economy’s population, and that the middle class generates the bulk of internal revenues. Put differently, there are only that many rich; otherwise, they would not be considered rich.

This is besides the fact that overtaxing the rich damages their motivation to produce, which means, in their case, the motivation to create more jobs. The same goes for overblowing the minimum wage.

In sum, this much-heralded plan purports to narrow Israel’s social gaps by simply taxing and spending. Alas, this formula has been tested in multiple lands, and in recent decades failed repeatedly, not only economically but also electorally.

SOCIAL DEMOCRACY’S welfare state has been on the retreat even in Scandinavia, where it has been the most ambitious and successful in the world. Sweden, for instance, has cut since the 1990s assorted taxes as well as unemployment and disability wages.

The last time a major socialist leader tried to defy economic gravity – when France’s François Mitterrand nationalized banks and imposed a “solidarity tax” on the rich in the early 1980s – he ended up retreating in the face of a financial and electoral backlash.

The following decade, when Britain’s Labour Party returned to 10 Downing Street for the first time since losing power to Margaret Thatcher, its leader, Tony Blair, did not reopen the coal mines she had closed down, nor did he renationalize British Air, British Gas, Jaguar or any of the other companies she had sold.

Germany’s last Social Democratic leader, Gerhard Schroeder, faced with soaring unemployment and zero growth, lowered taxes and cut social spending, including pensions, health insurance, and unemployment benefits.

One can assume Peretz and Levy-Abecassis know that, if given a chance, they won’t be able to do what they say they will do, because inflation would rise, the shekel would crack, Israel’s credit rating would decline, interest rates would soar, unemployment would climb, and foreign investors would flee.

As this column explained under other circumstances (“Wanted, capitalism with a human face,” 24 December 2017), capitalism’s crisis since 2008 has made the world search for the next big economic idea. Peretz and Levy-Abecassis evidently don’t bear it.

Then again, they are genuinely attuned to, and truly care for, the disadvantaged. For some in our midst, this alone is a novel idea.