"There is one figure that I go to sleep with every night and wake up with every morning: in 2002-12, Israel's growth rate was 26.8%, and in the same decade, the real monthly salary of Israelis rose by just 2.1%," said Minister of Finance Yair Lapid in a speech to the Israel Securities Authority annual corporate conference today. "In other words, the middle class, the people who boosted the country's profits by almost 28%, earned from this just 2%. They built the Israeli economy, they turned it into a success story, they put it at the top of development countries, and they earned nothing from it.
"The rich grew richer, the poor grew poorer, and people who are now in their 30s are the first generation of Israelis who live less well than their parents. Not only that, they also live at their parents' expense, and are still stuck living at home. This has to change.
"I am no socialist," declared Lapid. "Far from it, but the time has come to admit that trickle-down economics, Reganomics of the 1980s, which asserted that the rich should be allowed to make unlimited profits and all the tax breaks possible, and the money would trickle down to the poor, simply does not work. It failed in the US, it failed in Britain, and it failed in Israel. When the money reaches the top it stays at the top.
"Money should not be at the top. We should invest the money in the middle class. From there, it will flow down; from there it will flow up. We need the middle class to earn more money, because it does not spend this money in San Tropez or in Acapulco; it spends it in Yokne'am and in Kiryat Gat, and in Beersheva. It spends the money with other middle class people, who spend it on other middle class people. I know that this is not happening now."
Lapid offered a mea culpa, saying, "One of my biggest mistakes, when we were drawing up the budget, was not to tell the public, in real time, how much I hated it. How much I didn’t like it, and not proud of what we did, but that that there was no choice, because if we didn’t do this, the Israeli economy would have crumbled in our hands.
"The steps we took have put the economy back on track, and for the first time, we can offer tax breaks. We gave them to the middle class by cancelling the income tax hike and it will not come into effect on January 1. The first time that we could invest money in people, we invested it in the middle class in a project that will extend the school year for the low grades by three weeks, almost the entire month of July, something that is especially important for working parents. I tell you that the next government investments will focus on the issues of the middle class: education, transportation, housing, and lowering the cost of living.
"This does not mean that we have forgotten, even for a moment, the poor, but this is the way to help them."
Turning his attention to high-tech, Lapid said that innovation was the most sought-after Israeli product. It is a product independent of politics, the least affected by economic downturns, and does not rely on natural resources. "We are the only country that is fully identified with innovation. There are companies identified with innovation, such as Apple and Google, but there are no countries, except for the US and us. This is what the legendary book "Start-up Nation" is based on; it is why Israel has the third largest number of companies listed in the US; it is why companies like Waze and Check Point emerged here; it is why the DiskOnKey and Copaxone, the smart helmet, and the digital printer were invented here, as well as the Cherry tomato and Bamba. It is the reason why multinationals like Cisco and Siemens, as well as IBM, AT&T, Microsoft, and Google establish their R&D centers here, rather than in India and Taiwan, which are cheaper.
"But there is a problem, and it is us, the Israeli government and Israeli bureaucracy, the Israeli public sector, and Israeli regulation, which have become a tyranny, and the Israeli climate, which has driven away people and companies. These are the reasons why in six years, just six years from 2006 to 2012, Israel has fallen from 14th place to 26th place in the global competitiveness rankings.
"In my opinion, this is nothing less than appalling and threatening, because it means that we're losing our competitive advantage at a frightening pace. It is slipping through our fingers now, not in the future, and must do something now, not in the future. This is the principle behind the strategic plan that the Ministry of Finance with outside parties has drawn up in the past few months: We will fight the bureaucracy and over-regulation, we will take the vision of an innovation-based society and we will build around it an Israeli society and economy."
Published by Globes [online], Israel business news - www.globes-online.com - on December 11, 2013
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