Israel can afford to cut its defense budget without compromising security, Prof. Manuel Trajtenberg said over the weekend, adding that unless the government follows the path he charted in his report on reforms, young Israelis may suffer from dire consequences down the road. Hundreds of thousands of Israelis took to the streets over the summer to protest what they viewed as the government's indifference to the plight of the middle class. The protest movement, dubbed the social justice movement, was so sweeping, it prompted Prime Minister Benjamin Netanyahu to appoint a committee, headed by renowned economics professor Trajtenberg, tasked with formulating recommendations on how to alleviate the middle class' growing financial burden. In a forum hosted by the Eretz Israel Museum in Tel Aviv, Trajtenberg lambasted the government for failing to fully implement the recommendations put forth by his committee, which called for increasing the taxes on extremely high incomes and bolstering the non-military component of the budget. "If we do not implement proper care for toddlers at five years of age or younger, the harm will be irreparable," Trajtenberg warned. The economics professor also criticized the government's failure to adopt his recommendation to raise taxes on the super rich by 2 percent, and called on the general public to take the government to task on this matter. "I have yet to receive a satisfying explanation on this," he said. Trajtenberg warned that continued foot-dragging on the committee's recommendations puts Israel's economy at risk. "Had I not taken the role of the committee chair I would have been protesting myself," Trajtenberg said. "If we do not start tomorrow morning, the implementation of the recommendations regarding education will be further and further postponed until they are forgotten." Meanwhile, some economic reforms based on Trajtenberg's recommendations began to take effect on Sunday with a series of changes in tariffs and taxes that will affect Israeli pocketbooks, both negatively and positively. Among the biggest benefit is Trajtenberg's recommendation to grant tax breaks to fathers of children under the age of three. The benefit is a net increase of two tax points, or NIS 430 ($112.54) per month per child for those people in the qualifying tax bracket. Mothers also receive a tax break: working mothers of children up to age five will receive a net increase of NIS 215 ($56.27) to their wages per child. In other taxation matters, many employees are likely to feel a decrease in their tax burden as a result of an adjustment to the tax brackets. Those who earn between NIS 8-14,000 a month ($2.094-3,664) will be entitled to a salary addition, ranging from NIS 18-120 ($4.71-31.41) per month. In changes likely to hurt Israeli wallets, however, the price of gas will increase by NIS 0.12 ($0.03) per liter, a rise of 1.6% compared with the previous price of NIS 7.23 ($1.89) for 95 octane gasoline at self-service stations. Nevertheless, it may be comforting to some that this is a more moderate increase than the one originally planned, as the government abolished a gas tax increase of NIS 0.40 ($0.10) per liter. Hundreds of different products are also set to be exempt from customs duties starting Sunday. But for Israelis to benefit from this, market forces might have to do their part. The hope is that healthy competition will deter importers and distributors from pocketing the price difference generated by having tariffs lifted. The tariffs previously ranged from 8% to 12%, affecting some 700 different items. Now, products such as washing machines, ovens, stoves, dishwashers, baby strollers, toys, clothes and even pharmaceutical drugs are going to be much cheaper. Additionally, online shopping will now be duty free for purchases of up to 1,200 shekels (about $ 314), up significantly from the NIS 190 ($ 50) ceiling in place until this week. The capital gains tax rate will now stand at 25%, up from 20% and the corporate tax rate will stand at 25%, a one percentage point increase. This could translate into NIS 800 million (about $ 209 million) in added tax revenue for the state treasury annually. The Israel Electric Corp., which provides electricity to virtually all Israeli households, is expected to increase rates by an estimated 10% to 15% in the coming weeks. Price hikes will also affect the public transportation system, which is adjusted periodically according to the consumer price index. Bus fares will now cost 3% more, meaning that a single-zone ride within a city will now cost NIS 6.6 ($ 1.73). Municipal taxes and water usage fees are also expected to rise by some 10% to 25%. But smokers will likely be hit the hardest in light of the 20% increase in the sales tax on cigars. The mobile phone market is actually expected to experience a drop in prices, in light of the new carriers that have recently begun operating, such as Rami Levy Communications and additional service providers that are expected to make forays later this year.
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According to Trajtenberg, the government's reluctance to slash the defense budget for the sake of bolstering education is "unacceptable," particularly when it comes to the preschool and nursery level. He went on to call on the state to implement these measures without delay, saying that "A NIS 2.5 to 3 billion cut in defense ($655 million to $787 million) will not impede Israel's force buildup."