"No one in Israel should be surprised that Israel tops the poverty rankings. This is the direct result of economic and budget policies which benefit the rich and hurt the poor," Prof. Momi Dahan, the head of the Federmann School for Public Policy and Government at Hebrew University of Jerusalem told "Globes" in a special interview, in response to last week's OECD report, which states that Israel has the highest rate of poverty among its members, higher even than Mexico and Turkey.
Dahan appears to be ashamed of the results, but he says that he was unsurprised by them. He says that anyone who analyzes Israel's economic and budget policies of the past ten years would see how Israel achieved the dubious ranking, and he makes an even more alarming prophecy: the economy policy of the new budget will worsen the situation. "The most important point when reading the OECD report is to realize that Israel's high poverty rate is primarily a direct function of the distorted structure of the state budget, both in terms of government spending and in terms of taxes," he says.
Dahan adds, "Indirect taxes (VAT, the purchase tax - A.F.) collected from the poor are relatively higher than in other OECD countries, while conversely, property and income taxes (direct taxes, such as the income tax and the companies tax - A.F.), which target the wealthy, are lower than in other developed countries."
As for the argument that when calculating Israel's poverty rate, data for Arabs and the haredim (ultra-orthodox) should be excluded, Dahan says, "It should be realized that even without them, Israel's poverty rate is 60% above the OECD average. Anyway, excluding them is immoral."
"There is a dramatic change here," says Dahan. "This is the first time that the OECD, which is very conservative in its global outlook, explicitly says that welfare payments do not cause poverty or are an incentive not to work. For the first time, the report says that without assistance for the poor, poverty would be greater, not less. This is a dramatic change by one of the most conservative organizations in the world. In effect, Israel has become the most conservative institution in the world because it is the only one which believes that cutting welfare payments is the cure for poverty."
Moreover, "The tax proposals included very regressive taxes in the form of a higher health tax and National Insurance payments, which are taxes for all intents and purposes, on housewives who have no income at all. This is something new in the world: levying a poll tax, which was once prevalent, and Israel is setting an example for the world," says Dahan.
Dahan is especially angered by the cut in the child allowance, saying, "On the expenses side, one of the biggest items is the cut in the child allowance, which targets the poorest. This cut is not because Israel's welfare payments are high, and should be reined in. On the contrary, they are the lowest in the developed world. The average welfare payment in Israel is €38 (for the first three children), compared with €80 in the UK, €120 in France, and €190 in Germany."
Dahan attributes the cut in the child allowance to "the concept that a further cut in the child allowance will reduce poverty, completely contradicting Israel's experience since the program began in 2003."
Dahan is also angry about how the budget was submitted, saying, "A budget is submitted to the government, which votes on it, even though it does not receive the most basic information on how the budget - NIS 300 billion, which is not small change - will affect inequality and poverty in the coming years. The ministers voted with their eyes closed."
Dahan is also unsparing of new Minister of Finance Yair Lapid, saying, "Here comes a new finance minister, one of whose claims is that he did not know how big the deficit was - and I believe him. I would therefore have expected him to increase transparency in the budget decision-making process. But this budget process is suffering from all the illnesses of its predecessors. The first example is that there is insufficient information about key variables. Furthermore, some of the items in the Economic Arrangements bill do not include information about their effect on the budget, even most of the items!"
Published by Globes [online], Israel business news - www.globes-online.com - on May 19, 2013
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