Let’s talk about the upcoming budget deal. With that sentence I lost 40 readers, but jokes on you! I already got the hit! The deal will probably pass despite most people voting on the bill having little idea as to what’s in it. Beyond the Knesset’s members’ lack of knowledge, those who vote for them will know even less. There will be an article or two, some scandalous headline along the lines of “What’s Hiding in the Budget” even though its public information, but for the most part we won’t know how much or to whom. (Quick editor’s note: I swear to everything that I wrote that sentence and most of this post before the Zionist Union released a video about “hidden taxes”. The video contains a few “mistruths”, read this post and see if you can find them!) Budgeting matters so let’s learn more about it. Also, if you make it through I’ll provide a bear video.
The first step is understanding how much money we have to play with. The budget for 2016 was about 488 billion shekels. Based on 2014, revenue will be somewhere around 330-350 billion shekels, or approximately 8 Yair Lapid haircuts. As an aside, governments usually spend more than they make with the hopes that yearly debt growth will be lower than the country’s economic growth. However, if governments over-borrow, debt can pile up limiting government spending and forcing major cutbacks. For more look up “Troika”.
The chart below gives us a general idea of how the Knesset has managed the budget in recent years. Defense spending has been slightly reduced while education spending has been increased significantly. Healthcare has also gotten a boost as has spending on transportation (not shown below). The government is also spending less money on interest payments, in line with an improved debt to GDP ratio and lower interest rates around the world, while reducing the debt. (It is also important to know how the money is being spent in each branch, so check out this handy site and you can find out amounts and how budget choices have changed since 2009. Amounts for the Defense Ministry were missing when I looked, but can be found on the Finance Ministry’s website. Maybe you can find specific areas where money can be moved to and from! Aren’t numbers fun!?). Overall, spending is in line with revenue. The bear video is coming. Just stick with me.
Now comes the tricky part. If you want more government programs for the poor, or that trendy new fighter jet that you saw in the window when you were shopping in America, you need to either move money from something else, increase tax revenues or borrow money. And herein lies the danger. Democratic politicians are highly incentivized to be fiscally irresponsible when governing. It’s easy to borrow money for programs, which may be good, but which the country can’t afford. However, borrowing too much can lead to higher interest payments and can lock up government functionality and economic growth in the long run. That in turn can help extremist parties gain support even as the programs that created the necessity to borrow are slashed. Therefore, borrowing should only be done if the government expects the programs created with the borrowed money to pay for itself in the long run.
If borrowing is tricky does Israel have room to raise taxes for more spending? Obviously, there is no correct answer to this, but here are some helpful facts. Direct taxes in Israel are lower than the OECD average, (that’s right, I wrote lower) while indirect taxes such as VAT are higher. We also know that the corporate tax rate in Israel is 25%, which is slightly higher in comparison to the rest of the world. This would suggest that the place to add taxes (if you want to do so) would be on personal income and profits. Though, currently the middle class has by far the lowest tax burden so most likely they will be targeted, an unpopular decision.
It is fine if you want the government to spend more money, but you need to do so responsibly. Look through the available data, find the issues that you want to support and get on your politicians to get it done. But also think about how and if they can get it done. Otherwise, the consequences can be dire.
You did it. You made it through the whole thing. Unless you cheated. If you just scrolled down here looking for a free bear video then shame on you. These bears are not meant for you. Here’s the video
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