Taxes Are Up and Housing Neglected: The Fate of the Trajtenberg Recommendations | המרכז להעצמת האזרח

Taxes Are Up and Housing Neglected: The Fate of the Trajtenberg Recommendations

Taxes Are Up and Housing Neglected: The Fate of the Trajtenberg Recommendations

 

Seven years have passed since the social justice protest which lead to the establishment of the Trajtenberg Committee An examination of its 140 recommendations shows that 44% of them have been implemented in full, 34% in part, and 22% haven’t been implemented at all, including in the field of housing While Trajtenberg is satisfied with the report’s rate of implementation, in an interview with the “Globes” he expressed  concern that the economic policies of Netanyahu and Kahlon are undermining the Committee’s  gains

Amiram Barkat

09/26/2018 06:01 PM

 

Israeli history will remember the 3rd of September 2011 as the day on which the “March of the Million” took place, the spotlight event of the social justice protest. In response, and so as to lower the intensity of the flames of public ire, Prime Minister Benjamin Netanyahu initiated the establishment of a 14-member public committee headed by Prof. Manuel Trajtenberg, who at the time was chair of the Planning and Budgeting Committee of the Council for Higher Education. Over the course of seven weeks, various Committee teams toiled over the recommendations for a profound socio-economic transformation in Israel. The recommendations were submitted to the Government on 26th of September. 12 Government decisions dealing with the implementation of the 140 recommendations appearing in the Committee’s report were approved by a wide majority on the 9th of October.

What has happened since then? Although the “official” social justice protest ended seven years ago, it taught that many segments of the Israeli public were not as complacent as had been commonly believed in preceding years.  This understanding, along with the memory of tens and hundreds of thousands of Israelis from all ranks of society, regardless of race, gender and religion, going out week after week during that summer of 2011 to demonstrate at public squares and intersections, from the north to the south, served to inspire a series of secondary protests which sprang up since then, including the afternoon childcare protests, the disabled persons’ protest, and the LGBT protest which broke out this year around the issue of the Surrogacy Law.

 

Another direct result of the protest is the growth of new civil society organizations which are involved with monitoring governmental activities such as, for instance, “The Social Guard,” “The Public Knowledge Workshop,” “Lobby 99” and “100 Days of Transparency,” and it doesn’t end there by any means. Socio-economic topics, which largely were beyond of the scope of public debate, were placed at the heart of media discourse, new political parties were formed based on a social rather than a political platform; and legislative initiatives which were formerly considered radical were passed in the Knesset.

 

And what about the Trajtenberg Report recommendations which had been presented with great fanfare? 7 years later, it turns out that only 44% of them have been fully implemented, 22% of the report’s recommendations have not been implemented at all to date, and 34% were only partially implemented. This is what emerges from the follow-up “Situation Report on the Implementation of the Trajtenberg Committee Recommendations,” which was written by Oriya Gefen, researcher for the Monitor Project of the Citizens' Empowerment Center in Israel, supervised by the Center's Government Affairs Director Noa Rosenfeld.

The report from the Center, which in recent years has specialized in conducting follow-up of government decision implementation, indicates that especially high implementation rates were noted for recommendations which deal with tax systems, employment, the micro-economic environment, fiscal policy and the health field, where 100% of the recommendations were implemented.  Conversely, especially low implementation rates were noted in areas where Israel is considered to be weakest in the OECD – education and nursing. The areas of housing, transport, competitiveness, and cost of living fall in between. This is the third report of this kind dealing with a follow-up on the Report’s implementation. 

In 2014, three years after the protest, the Van Leer Institute published a concise, cross-sectional review of the report’s implementation; two years ago, five full years after the protest, the Citizens' Empowerment Center examined the implementation of 12 “Trajtenberg Decisions” which had been approved when the report was submitted.

 “This time, we decided to go one step further as far as the depth and the scope of the examination are concerned,” stated Einat Fisher-Lalo, CEO of the Citizens' Empowerment Center, explaining how this report differed from the previous one. “We took not only the original 140 recommendations, but also consecutive governmental decisions which perhaps were not planned for or targeted at the protest recommendations, but adopted precisely the policy Trajtenberg spoke about.”

Fisher-Lalo added that “We examined 165 recommendations in all. This required in-depth research because the intent was to provide a comprehensive, precise and accurate picture of what happened with the protest.”

 

You are an entity specializing in monitoring the implementation of governmental decisions – how do the Trajtenberg implementation rates compare with the standard?

“Quite similar, if you check implementation percentages of the decisions’ sections, it stands at about 70%. At the Prime Minister’s Office, you’ll be told that they reached 78%.

 

On the other hand, these recommendations gained an extremely high profile in the media, and extraordinary political and public interest.

“That’s true. And therefore, when you’re looking at full implementation of 44%, and partial implementation of 34%, one can’t say that nothing happened, or that the government did not implement Trajtenberg. But one can say that we’re not where we would like to be.”

 

What are the changes that we will see significant improvement in the implementation percentages in coming years?

“I estimate that implementation rates will go up on the whole, certainly in the field of nursing; and I’m sure that even in the housing field, which is very long-term, there will be higher implementation.” However, Fisher-Lalo warns that besides this, “as regards the sub-sections, the chances of them being realized are diminishing, and there are places of clear loss of ground, for instance on the issue of corporate tax.”

One can see that successful implementation of the Committees’ recommendations is especially evident in areas that are clear and measurable, such as the tax system where 9 out of 12 recommendations were fully implemented, and the remaining three were only partially implemented.  However, the field of education is the opposite case, especially regarding the issue of day care centers and crèches for the under-threes, which in fact the public considered one of the most outstanding successes of the Trajtenberg recommendations and of the protest in general.

Fisher-Lalo bursts the bubble concerning the success of the Trajtenberg recommendations in this area. In her estimation, this probably represents the most striking failure in implementing the Committee recommendations. “If you delve into this section, you discover that it doesn’t stop at the supervision and building of day care centers.  For instance, there is an under-the-radar section about professional training for caregivers. There is a section stating that the Government should budget NIS 355 million over a five-year period for professional training, and this never happened since there is no law and no system for supervision that the Government was required to establish. And in another section, a further NIS 700 million was supposed to fund conformity of private day care centers to public ones, based on standards set by the State. But since there are no standards and none were set, this simply did not happen. Another sections recommended directing over NIS one billion to building new day care centers – a section which were partially implemented, especially recently.” 

 

 “In the area of housing, the Government took plenty of time”

The report indicates that lack of implementations doesn’t end there. For instance, there was no supervision on the price of textbooks, and in the welfare field too, many things were excluded, such as extending the public transportation discounts received by senior citizens, which stand at 50% of ticket cost, to all eligible populations.

 

At times, the status you mention is a bit misleading. Long-term encouragement of rental housing by institutional entities for instance – you noted that it was partially implemented – but there hasn’t been a single project constructed as yet.

“When we monitor the Government, we are extremely careful to adhere to the text of the recommendation, and in this case the recommendation states “encourage institutional entities,” and the Government has indeed taken steps in this direction. All in all, we are nice to the Government.”

Anyone who peruses the recommendations won’t have to look far to find other examples of the same “niceness” shown by the Center to the Government. Thus for instance, the recommendation to extend public transportation lines directly from outlying regions to employment centers and metropolitan centers was noted in the report as “fully implemented” owing to Ministry of Transport “Kavei Heznek” (rapid lines), although in fact its effects are far from being impactful.

And thus, despite the fact that Israeli public transportation suffers from many shortcomings, only two specific recommendations in the transport field were noted as implementation failures. In this context, it is important to mention the bolded comment by the compilers of the report at the start of the document, stating that the objective of the report is solely to check implementation of recommendations, and not their impact on the cost of living or inequality in Israel.

Among other unimplemented recommendations, one may find quite a few that were inconvenient for major power players. For instance, included here one may find the restriction of defense budget growth to 1.3% annually or imposing supervision in Yeshivas (Talmudic colleges) of the attendance of married Yeshiva students who are exempt from army recruitment because “Torah study is their occupation.”

 

What can be said about the group of recommendations that were not implemented? Is there any common thread running through them?

“I would really like to be able to say that all unimplemented recommendations have a common denominator, but as we usually see, there is no one answer. It always varies on a scale ranging between unwillingness, other priorities, and overload. This is why we go into detail.”

 

Why for instance did the Government fail in the struggle over housing prices? Was it because the recommendations were not implemented, or because the recommendations were not suitable?

“I don’t understand too much about the housing field, but we noticed that in this specific area, it took quite a while until the Government decided to implement the recommendations.  Up until the last two or three years, when things started to move forward with the Housing Cabinet and Buyer’s Price – these things and their like never happened before. On the other hand, in the nursing field there is a reform that for the most part is supposed to start in 2019-2020, so we classified the recommendations as “unimplemented.” Both competitiveness and tax policy were initiated relatively early, although steps were implemented there and later revoked, such as the recommendation to cancel the reduced tax framework and to raise corporate tax back to 25% - they partially backtracked when they decreased to 23%, but did not go back to the original reduced tax framework.”

 

Are there other fields that are conspicuously below standard?

“Again, there is a high percentage of non-implementation in the field of education – 47%; in the nursing field more than 60% was not implemented, but the Government appears to be moving in that direction of late, and I believe that in the housing field as well, even though the rate of non-implementation is only 21%, I believe that we are still not where we would like to be.”

 

Trajtenberg:  “It’s time to start worrying”

Although he is satisfied on the whole with the extent of implementation of the recommendations by the Committee he headed, Prof. Manuel Trajtenberg (67) who recently left the Knesset, is concerned about the failure to solve the housing crisis, and that the fruits of growth are not trickling down. Naturally, he also takes exception to the claims of Netanyahu and Kahlon who feel that increased expenditures can be financed by means of lowered taxation. “That economic approach has become obsolete,” he says.

 

Prof. Manuel Trajtenberg, seven years ago would you have been willing to sign on a result of 44% full implementation and 34% partial implementation?

“Absolutely. At that time, I could never have imagined that the percentage of implementation would be so high, but I take no pleasure in it because it’s a limited implementation of the recommendations. It’s not the full picture – for better or worse. On the downside, part of the unimplemented 22% include cardinal recommendations in the field of housing, increasing access to public housing, to available housing and approach to the entire issue of increasing apartment supply. We stated over and over that in the absence of a process for massive planning and massive construction, the laws of supply and demand would not enable a price halt. But the previous Government did not take the segment on housing seriously. At the time, if they would have done half of what Minister Kahlon attempted to do, and partly succeeded in doing since he started his service, the situation would be different. But it wasn’t done, and it is clear today that the housing problem was not solved. I don’t think there is a citizen in Israel who doesn’t find it difficult.”

 

Except for apartment owners naturally.

“Not really. Even if you have one apartment, and you have children you’re concerned about, the situation isn’t simple. With the exception of the very few at the top, there isn’t an Israeli citizen who doesn’t suffer because of this. Minister Kahlon took responsibility, with all the political risk this involves, and I give him a lot of credit for it. He made quite a few right moves, especially taking the planning institutions and consolidating them in the Ministry of Finance.”

 

Do you estimate that a trend of falling prices has started in the housing market?

“The last CPI indicated a rise, so I don’t know whether or not this is something specific, but for the moment all one can say is that there is a halt – and I don’t make light of such a halt, but where will we go from here? That’s still not clear.

“On the other hand, a lot happened in other areas, more than we thought could happen. For instance, education for children aged 3-4, which immediately and significantly eased the financial burden of parents, who could finally benefit from the Free Compulsory Education Law for children aged 3-4. And it’s not just that.

 “It is also the approach that the preschool age is an important stage in child development which requires resources from the State. That you cannot impose it on parents in a country with the highest birthrate in the OECD, and it opens the door to ongoing improvement such as a second preschool assistant, because once you have a foot in the door, if starts opening up.

“In the antitrust field, there was in immediate implementation of the recommendations, and the Antitrust Authority adopted a proactive and far more assertive approach, and does not wait until someone complains about a monopoly or a merger, but examines the presence of market power in the various industries, and if such is found – it takes action against it. In the cost of living field, this must be examined over the long term; to most of the public this does not seem to be a result of the protest – but it is one.”

 

Despite all this, the feeling that the cost of living is unbearable is still with us.

“It is there, but one can’t claim that things haven’t changed. Since the protest, for the first time Tnuva announced its plans to raise the price of its products by 3%. Until then they raised the prices of unsupervised products, with no accountability. The cost of living in Israel is extremely high, in a wide arc of industries, but in spite of this, the CPI has remained virtually unchanged in the last few years. Inflation in Israel was negative for some months in recent years, and this happened at a time when the economy was seething with economic activity. The economy is growing, unemployment is at a low – a situation which apparently encourages inflation – but that hasn’t happened. Price hikes have stopped. On the other hand, from the aspect of prices, we remain with many high parameters when compared globally. A number of pockets of monopolistic power and market power have to be attacked head-on – which is what the Antitrust Authority has started to do, but along with regulation-contingent and Government-contingent prices – efforts must be concentrated there.

 

Do you think there is room for a new Trajtenberg Committee to address the issues which still require handling?

“I’m not a big fan of committees. Establishing a committee signals the failure of governmental policy. I would like things to happen without a crisis that leads to a committee being formed. I would say ‘No to Committees, and yes to far more assertive action by the Government.’”

 

Since the protest, overall we have had some good years of economic growth.

“The fact that we are, as it were, in a exemplary world as far as economic parameters are concerned, means that we have to start worrying rather than patting ourselves on the back. It’s wonderful that the economy is flourishing and that unemployment is low – but what does this say about most of the Israeli population? They are not reaping maximum benefit from these processes. We have many more impoverished workers. True we have more workers, the rate of employment has risen, the rate of unemployment has dropped, and that’s wonderful, but most citizens are not reaping the benefits.”

 

What do you consider your Committee’s main contribution?

“First and foremost, I give credit to the protest. The Committee was a conduit to translate the outcry that arose from it into action. As regards its impact – Israeli economy and Israeli society looks different as a result of the Committee. In the public discourse, in what is considered to be politically correct, in the language we use to discuss economic issues and in a series of secondary economic protests, the afternoon childcare protest, the nurses’ protest, the disabled persons’ protest – the consolidation of a norm that it is legitimate to take to the streets and the demands gain public echo. Previously, everything labeled as social was considered marginal, outside the mainstream, and this voice suddenly gained a different legitimacy and Governmental response.

 “There were changes in the political arena too. Yesh Atid was founded in the wake of the protest, and Kahlon promotes a social agenda as well. There are also other Knesset members, such as Itzik Shmuli, Stav Shaffir, Yossi Yonah and myself, who express the spirit of the protest. Furthermore, the law to limit executive salaries in financial firms is a huge change –proposals like this were submitted in the past, but they were treated as though they were somewhat delusional. The day that this law passed in the Finance Committee, there was a contest between Minister Kahlon and Knesset members such as Shelly Yachimovich – about who was more stringent in wording the law. This would have been unimaginable previously.”

 

There is criticism that the Committee has also brought populism to politics.

“This risk is always present. This was very evident when the Committee worked with half a million people in the streets, but if you read the report – one of the ironclad rules that the Committee set itself was that we would not turn on the budgetary faucet. Avoidance of populism was my guiding principle. It would have been easiest to give today and pay tomorrow. We refused. The incremental budget was supposed to come from a cutback in defense. With time, there has been some retraction.”

 

Are you concerned about this retraction?

“Yes, because if this retraction takes place when the scent of elections is in the air it’s dangerous. There is the feeling that an incremental budget can be passed without cutbacks, which is what happened when we passed the latest budgets – it is something that could undermine fiscal discipline in the long term. This worries me, but it’s still not reached irresponsible dimensions.”

 

You recommended an increase of direct taxation, and in recent years there has been retraction from it.

“True, corporate tax and income tax increased – this was one of the report’s important recommendations that was adopted and implemented in full. It’s true that corporate tax has now been reduced now, but we forget that we were on a deterministic path toward a gradual reduction of corporate tax and income tax over the years. Great! Less money is taken from you, but what does that say about the social outlay for education and for health. Where would we be now if we had continued down that path?

 

What’s your response to the Prime Minister and Finance Minister who claim that the more taxes are lowered, the more income there will be?

“It’s impossible to maintain a tax-lowering path and to simultaneously provide a solution to pressing social problems on the agenda, because it will bring you to a deficit. I say this in the plainest possible terms. We dropped below 40% as regards the weight of government expenditures in relation to the GDP.  This is very low compared to the OECD average which stands at 45%. The Prime Minister recently announced that the defense budget would be 6% of the GDP in the long term. That’s fine. Maybe this is what Israel needs in terms of defense. But what will happen to civilian expenditures? If we want a 6% GDP level for defense, then you certainly have to maintain a taxation level that allows you to provide a proper solution for education, health and transportation.”

 

And this panacea of lowering taxes to increase income – doesn’t work?

“This theory became obsolete a long time ago. It is appropriate when you have taxation like that of France with a marginal tax of 70% - then it’s certainly right. With a corporate tax of 40% - certainly. But at the tax levels of the State of Israel, to say that if you lower the level of taxation further, income will increase? Nothing is further from the truth, there is no study to support this – as a matter of fact, it’s selling illusions.”