Friday, August 05, 2011

Never had it so good?

A wave of rebellion and despair is sweeping across Israel. Tented protest camps in every city and town proclaim that this country is impossible to live in, that Israelis are oppressed by a horrendous economy, brutal capitalism and a tiny wealthy elite robbing the very shirts off the backs of the ordinary middle and working classes. Demostrations bemoan the prohibitive cost of living, sky high housing prices, food and petrol that have risen so much they have become luxuries for ordinary people.

The protests wouldn't be out of place in many parts of Europe, and to see them you would assume that Israel's economy must be suffering the sort of disasterous financial woes afflicting Greece, Italy and Spain. Looking at the protest camps and the angry demonstrations in Israeli cities you would assume that Israel is facing double digit unemployment, failing industries and catastrophic debt.

You would be wrong.

The Israeli economy is actually currently one of the strongest in the world, reporting high levels of growth and a strong Shekel. Unemployment is at its lowest level ever, about 5.8%. Many shops and businesses display help wanted ads but seem unable to fill all the vacant positions.

Israelis are travelling abroad in record numbers. Glitzy new towers are popping up in Tel Aviv and elsewhere along with swank new restaurants and spas and luxury boutique hotels. Unprecedented numbers of A list international performers are gracing Israel's shores with tickets priced in the hundreds of Shekels, up to a thousand or more for the best seats. SUVs are being purchased in record numbers.

It seems hard to believe that these fruits of the boom are being enjoyed only by the tiny wealthy elite, yet many middle class Israelis seem to be struggling to finish the month on two average salaries.

Some among the protesters charge that the rich here are only getting richer by pushing the rest of the country into poverty. It would seem more accurate that many Israelis are being squeezed between Israel's comparitively low salaries and high taxes which includes 16% VAT and a top income tax rate of 57% (including national insurance payments) which kicks in at a relatively low level of pay.

One of the key grievances is the high price of housing in Israel today. Many people have been priced out of the centre of the country where many of the jobs are to be found. Young couples find themselves moving in with parents because rents have shot up to unprecedented levels.

Yet high housing prices are hardly the sign of a poor economy. Yes, the current property market looks unsustainable, a bubble waiting to burst. On the other hand this is a country with a young and growing population and a culture of property ownership, even when the cost of doing so is near bankruptcy. Traditionally it's quite common, even expected, that parents at least partially fund or even buy in advance apartments for their children.

Housing in Israel's densely populated central cities  has never been cheap though, why would anyone expect affordable housing in the middle of desirable locations such as north Tel Aviv or central Jerusalem?

In recent years real estate in many of Israel's big cities, in particular the capital, Jerusalem, has also been inflated by foreign buyers. New luxury developments in Tel Aviv, Jaffa, Netanya, Jerusalem, Ashdod, Ashkelon and elsewhere are attractive as holiday homes to diaspora Jews, further fueling spiralling housing prices and leaving many Israelis priced out of major cities while these holiday homes sit vacant for most of the year. Entire Jerusalem apartment buildings and even neighbourhoods are virtual ghost towns outside of the popular vacation seasons.

One of the factors keeping prices so high is the insane bureaucratic hoops one has to jump through in order to get a building project off the ground. Prices are rising, demand is high, but in recent years building starts have if anything declined. The system is simply not flexible enough to be able respond quickly to market forces.

The Netanyahu government was trying to push through land reforms that would make it easier to open up land for construction but many of those currently protesting rising housing costs are those opposed to land reform.

It is one of the conundrums of the recent demonstrations is that many of the same groups protesting the lack of cheap housing are those who campaigned against new building starts on the grounds of protecting the environment. Protecting Israel's rich archaeology and beautiful nature is important, but a growing population also needs somewhere to live. Something has to give.

At the moment there seem to be few people trying to come up with creative solutions to all these problems, prefering instead to go head to head with "evil" developers seeking to make a profit, while accusing them of destroying Israel's ecology and not providing affordable housing.

While housing prices eat up greater percentages of an average family's income, the day to day cost of living  has shot up too. Global prices rises in basic commodities such as fuel, grains and cotton have of course affected Israel. Electricity prices are set to rise by 20% this month, with a 17% increase retroactively charged for the first half of 2011. Government taxes and levies have only compounded these increases. High taxes on petrol, cars and many imported goods keeps their cost artificially high.

Israel aims for self-sufficiency in many things but it is still a small country in a region where politics allows little to no trade with our immediate neighbours, Israel must import from further afield, in particular from Europe, another reason why the hike in global fuels costs has hit hard.

Years of drought and a national water authority and government which have been slow to implement plans to conserve water and construct desalinisation plants has resulted in huge rises in water tarriffs in Israel, greatly increasing the average family's water bill as well as the cost of produce.

Yet the malls are full, cafes and restaurants do good business, hotels are booked. Yes, many Israelis are doing so on overdrafts and deferrred payments, but many are not.

The Israeli economy has never had it so good, and yet, many feel that they've never had it so bad.

And this does seem to be the key uniting issue among the disparate protestors - what don't we feel? We don't feel good! From the genuinely poor protesting the backsliding ineffeciency of the Amidar public housing offices to the comfortable middle class students griping that they can't afford to live in affluent north Tel Aviv, close to the university campus, a general feeling of discontent is sweeping the country.

In the tented protest camps and demonstrations people are calling for a return to socialism, an expansion of the welfare state, more public housing, free government sponsored childcare, pay increases for public sector workers, free college tuition, a rise in the top income tax bracket, more taxes on the wealthy and cheaper food.

Meanwhile possible solutions, such as opening the country's protectionist dairy market to increased foreign imports to lower prices, are met with protests at the damage such a move could cause to Israeli farmers, who are already facing losses from the decrease in cottage cheese prices brought on by the recent cheese boycott.

It seems that Israelis want to have it all. Higher incomes with lower taxes but increased state spending and a generous welfare state. Looking across the Mediterranean to the ailing debt ridden economies of our neighbours in Greece, Italy and Spain should give us pause for thought, as should this week's down grading of US credit-ratings. Solutions need to be found to Israel's pressing housing problem and rising food costs, but doing so at the expense of destroying our economy will only lead in the long run to even greater financial woes in Israel. So far we've managed to ride out the worst of the global financial crisis. I pray that our government and parliament will have the wisdom to continue to do so.

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