Shame of riches in Middle East

Riches are for spending, said Francis Bacon, and Finance Minister Moshe Kahlon this week seemed eager to vindicate him.

In a hastily called press conference Kahlon unveiled a set of supply-side measures fraught with economic populism, political stratagem and personal revenge.

Titled “Net Family,” Kahlon’s plan aims to expand the middle class’s net income by cutting taxes for working parents; raising the lowest-paid workers’ negative income tax; subsidizing afternoon recreation centers for kindergartens and elementary schools; slashing tariffs and sales taxes for assorted consumer goods; and expanding what the handicapped can earn and still receive state assistance.

The fifth of seven children born to penniless immigrants from Libya, the 56-year-old Kahlon was raised in the impoverished Givat Olga neighborhood of Hadera, before working his way through law school and dedicating a meteoric political career to narrowing social gaps.

In this ideological sense, the plan he unveiled Tuesday fits naturally in his résumé, as it unabashedly prizes middle-income, working parents of young children.

For instance, a household with three kids up to age five and a gross monthly income of NIS 30,000 will save an annual NIS 17,000 in income tax. Such a formula effectively excludes most ultra-Orthodox families and also high-income Israelis, while embracing all the rest, who constitute Kahlon’s target electorate.

Similarly, the plan lists towns in the geographic periphery where parents will receive a monthly NIS 350 reimbursement for every child up to age eight who spends the afternoon in a recreation center. Such centers, which operate in thousands of schools and kindergartens, charge between NIS 1,000 and NIS 2,000 per month and are designed to let parents stay at work longer. Parents in rich towns such as Tel Aviv or Haifa will get less than a third of that payback.

The plan also benefits the working poor. Negative income tax, a state-paid infusion for earners of monthly wages of up to NIS 4,800, will receive supplements to raise their income to NIS 5,000, whose earners will thus end up with an extra NIS 6,000 per year.

In its quest to encourage work, the plan earmarks a hefty NIS 4 billion in order to raise the maximum income handicapped persons can earn without losing their monthly wage of NIS 2,342 from the National Insurance Institute. The wage itself is also set to grow, by some 50%, though this part of the plan has not been fully detailed.

Finally, in what is designed to please everyone except the rich, the 15% sales tax on cellphones will be nixed, as will tariffs on imported shoes and babies’ clothing.

This means that a smartphone’s price will soon plunge by a good NIS 300.

The estimated cost of the entire package is some NIS 6.3b., technically a reasonable price, not because it is low, but because tax revenue has been higher than forecast, even before counting the windfall from Intel Corporation’s recent purchase of Mobileye, which is expected to bring the Income Tax Authority an unplanned NIS 4b.

What is less reasonable is the political kitchen in which this package has been cooked and served.

THE PACKAGE’S first deformity was visible, and also audible, in its presentation.

The visible, or rather invisible, part was Benjamin Netanyahu’s absence from the press conference that unveiled what should be a major move for his government.

Yet the prime minister wasn’t there, and not because he declined to show up, but because Kahlon declined to invite him.

It was an escalation in a protracted war of attrition, which climaxed in Kahlon’s refusal to join Netanyahu during his recent trip to China, and before that included complaints that Netanyahu repeatedly takes credit for Kahlon’s accomplishments, like the record-low 4.8% unemployment rate, without even mentioning the finance minister who is at the heart of such a trend.

The press conference was reportedly called hastily because Kahlon got word that the prime minister intended to make an announcement concerning the expanded assistance to the handicapped.

The audible part of Kahlon’s displeasure was heard in a thinly veiled jab directed at Netanyahu personally.

“Everyone,” said Kahlon, “is talking about the middle class,” and also “about the fat guy and the skinny guy.”

The fat guy and the skinny guy are Netanyahu’s famous allusions to the public sector, which is the fat guy, and to the private sector, which is the skinny guy carrying the fat guy on his shoulders. Obviously referring to Netanyahu, Kahlon said “some people talk, while we actually do.”

Tensions between Netanyahu and Kahlon hark back to the latter’s service in Netanyahu’s second government as the popular minister of communications who deregulated the cellphone market and thus triggered the decline in prices to the consumer.

Neither man ever explained what exactly happened between them back then, but the bottom line was that Kahlon took a break from politics during which he studied management at Harvard University, before returning home and setting up his own party, Kulanu.

The divide between Kahlon and Netanyahu runs deeper than Netanyahu seems ready to appreciate.

Socially, the two were reared on different planets. The slum where Kahlon grew up is a five-minute car ride, but a social light year, from opulent Caesarea, where Netanyahu now resides. The soft-spoken Kahlon alluded to this mental distance when he said recently, in response to police investigations concerning Netanyahu’s relations with billionaires, “Cigars stink.”

Behind the pair’s disparate social backgrounds lurks a ruling party’s troubled economic soul.

The Likud was founded by economically contradictory forces. Netanyahu’s monetarist faith, obtained during his years in the US, follows in the footsteps of Yitzhak Moda’i, the finance minister who in 1985 led Israel’s transition from socialism to capitalism, and of Yohanan Bader, who was Menachem Begin’s shadow finance minister throughout his 29 years as leader of the opposition.

Kahlon’s plan follows in the footsteps of Likud populists whose most memorable representative was former minister of finance Yoram Aridor, whose reduction of taxes on automobiles and household appliances helped fan the hyperinflation that the conservatives were later called to undo.

Kahlon’s package comes in an entirely different setting.

Unlike the Israeli economy of the early 1980s, which was among the weakest in the West, today’s is among the world’s healthiest, boasting a rare combination of almost full employment, low budget deficit, low public debt, a trade surplus, surplus tax revenue, record foreign currency reserves, negligible inflation, profitable gas fields and one of the world’s strongest currencies.

Kahlon’s package is therefore financially affordable and also economically desirable, as the Bank of Israel said Thursday, praising its encouragement of work. Politically, however, the plan might prove unaffordable for someone, whether its author or his boss.

IN STINGING Netanyahu the way he did, Kahlon has made it difficult for the prime minister to fully accept his plan.

Expectations are therefore rife that Likud lawmakers will seek ways to dilute the plan and delay its passage. In this, they might be helped by Knesset Finance Committee chairman Moshe Gafni, whose United Torah Judaism’s voters are generally ignored by the plan.

If the plan stalls in the Knesset, Kahlon might feel cornered and conclude he has no choice but to bolt the government and thus trigger an early election.

Then again, Kahlon is the one who cornered the prime minister, who must now choose between surrendering to a coalition ally’s provocation, and playing the heartless paymaster who confiscates Santa Claus’s presents to the poor, the handicapped and the overtaxed middle classes.

Netanyahu has only himself to blame for his finance minister’s wrath.

The prime minister’s crusade to cancel the Israel Broadcast Authority’s planned abolition maneuvered Kahlon, who demanded the reform’s execution, into the position of the bad guy who robs 1,000 workers of their jobs.

Netanyahu, for his part, might actually want the early election that all this might in due course unleash. As he sees things, Kahlon belongs in the Likud, and his party is an aberration that is doomed to evaporate like numerous other centrist formations along the years. However, until they vanish, centrists can cause trouble and must therefore be marginalized, before they find ways to replace the Right with the Left.

That is why Netanyahu is doing now to the economically centrist Kahlon what he previously did to the diplomatically centrist Yair Lapid of Yesh Atid, and in the interim also to former defense minister Moshe Ya’alon, whose humanism and legalism are also seen in today’s Likud as forms of a dangerous centrism.

What Netanyahu seems to be ruling out is the prospect that his humiliations’ mounting victims will find the occasion to unite. Extraordinary expense, said Bacon, must be limited by the worth of the occasion.

That worthy occasion may or may not follow, but the extraordinary expense is already here.


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