Tuesday, September 13, 2011

Keeping our heads above water

The wave of "social justice" protests continue to sweep the country with demands for a "socially just" budget, more government spending, higher taxes on the rich, increased state benefits, higher wages for state employees and more.

In principle many of the ideas sound good - more goverment programmes to help the poor and infirm, more government spending on healthcare, better paid state employees - in particular those with vital and difficult jobs like medical professionals and social workers.

Problem is that raising spending to do those things would probably have the effect of plunging Israel into the economic depression plaguing most the western economies.

Things aren't perfect now in Israel but they could be one heck of a lot worse. We are just about the only western country which actually has low unemployment (5.5%, Israel's lowest ever), our international credit rating was actually just upgraded to A+ (by contrast the US credit rating was just downgraded) and responsible fiscal management means we have far less debt than the US or western Europe.

Look at the terrible crises in Greece, Spain, Italy, and for that matter the UK and US, and be warned, that will be Israel if we rock the boat now with increased spending and higher taxes.

In Israel today the top decile (asiron ha-elyon) pay 75% of the total income tax paid, and the top one percent of earners pay about 31% of income tax. Raising taxes and giving them more reason to either evade or leave the country is going to hurt all of us and result in more of the burden shifting to the already overburdened and lower earning middle classes.

So yes, maybe some small things can be changed, there must be wasteful government programmes that could be cut so the budget can be spent on more useful initiatives. Overall though we are currently one of the most stable economies in the world at a time when some of the strongest economies in the world are on the verge of collapse. True, many Israelis are just about holding their heads above water, but increase spending and increase Israel's debt and we'll find ourselves drowning just like our southern European neighbours.

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