Israel committee urges tax hikes on rich to fund social programs

By Edmund Sanders, Los Angeles Times

Sept. 27, 2011 12 AM PT

Reporting from Jerusalem — A government committee created this summer in response to the massive social protests that swept through Israel delivered its much-anticipated report Monday, calling for tax hikes on the rich to pay for an increase in funding for low-income housing, education and welfare.

The panel, headed by Tel Aviv University economics professor Manuel Trajtenberg, submitted its recommendations to Prime Minister Benjamin Netanyahu, who praised the committee for achieving “the impossible.” Netanyahu said the recommendations would “fix the distortions in the economy.”

Among other things, the plan calls for massive new apartment construction, expanded free education for toddlers, price reductions on some food items and reduced taxes on imports. The programs would be paid for through higher taxes on the wealthy and on corporations and through cuts in defense spending.

Implementation of such changes remains a long way off. The recommendations will be forwarded to the Cabinet for review and, if approved, sent to the Knesset, Israel’s parliament.

Leaders of the protest movement that electrified Israel this summer immediately dismissed the report as inadequate. Though protesters dismantled their tent cities this month, they have vowed to remain active in pushing for social reforms.

“This is not a far-reaching change,” protest leader Daphne Leef told reporters. “It seems this committee has borne no fruit, not even the little we hoped to be surprised with.”

Movement leaders said they would unveil their own plan Tuesday.

In a statement, the opposition Kadima party called the recommendations “an artificial attempt to silence the social outcry with a Band-Aid.”

The committee’s recommendations call for the construction of nearly 200,000 housing units and higher taxes on unoccupied apartments, mostly owned by foreigners from the U.S. and Europe.

A long-delayed plan to start state-funded education at age 3 rather than the current age 5 would be implemented. School hours would be extended.

To pay for the changes, the panel called for raising the capital gains tax to 25% from 20%. Other new taxes would be levied on those earning high salaries or receiving stock options. A middle-class tax cut that was supposed to take effect soon would be canceled.

The committee also suggested cutting or eliminating customs taxes on imported electronics and certain food items. Such taxes are blamed for high prices and lack of competition in Israel’s market for consumer goods.

Netanyahu has signaled that he would be open to considering a proposal to slash about $800 million, or 5%, from the defense budget.

Defense officials are vowing to fight such cuts, saying they would leave Israel vulnerable, particularly during the current regional instability. Among other things, they say the military would lack sufficient funds to expand the Iron Dome missile defense system, which intercepts short-range rockets fired from the Gaza Strip.

Trajtenberg acknowledged that military defense was crucial, but said a balance must be struck in light of the massive rallies and calls for change.

“Israel’s social security is as important as its physical security,” he said at a news conference.

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