Transcript of meetings by committee appointed following 2011 social protests reveals effort to make recommendations easier to implement

The Trajtenberg Committee on Socioeconomic Change tailored some of its recommendations to be more politically palatable, according to an investigation by Calcalist, which on Sunday uncovered the official transcripts of the discussions for the first time.

Prof. Manuel Trajtenberg’s committee to map out policies to address the 2011 social protests omitted some recommendations on issues such as taxes, labor unions and the cost of living from its final report, in part to make the recommendations “easier” for politicians to pass, and in part in response to pressure from government representatives, according to the investigation, based on 184,797 words of transcripts in 763 pages.

For example, in a September 2011 meeting, National Economic Council Chairman Eugene Kandel explained why the group did not address reforming tax-exempt continuing education funds (Keren Hishtalmut), which experts estimate cost the state NIS 2.4 billion a year in lost tax revenue.

“There’s an agreement here not to touch it,” Calcalist quoted Kandel as saying. “Not because we don’t think it’s right, but because such an action complicates the system.”

When the committee moved to a discussion of the corporate tax rate, Avi Simhon, then a senior economic adviser to Finance Minister Yuval Steinitz, put it bluntly: “Something else that I perhaps should not say as an economist, but I will say anyway: When we do things, we can’t come and slap the policy-makers in the face.”

In the discussion, which focused on what the corporate tax rate should be, Trajtenberg pushed for raising it a few percentage points.

“We’re coming from a tax of 36 percent that dropped to 24%. The OECD average is 25.5%,” Trajtenberg reportedly said in an August 2011 meeting. Raising it to 26 or 27% would not be the end of the world, he argued, saying that Prime Minister Binyamin Netanyahu was willing to take such steps.

Eyal Gabai, representing the Prime Minister’s Office, disagreed, vehemently opposing any tax hikes. “Even if we think there’s some logic in stopping the downward trend, I’m not sure we need to drive the economy crazy. We’re coming, telling the government, ‘Stop, but don’t just stop. Raise [taxes],’” he was quoted as saying.

“That’s very aggressive! I’m done believing this country. This is a country that comes and changes the rules, makes promises and doesn’t keep them, changes things retroactively as a result of public pressure. This government must have some credibility in the markets for the other things it does. We have to take that into account,” he said, according to the report.

The Finance Ministry took the same view. “If the policymakers thought the corporate tax should be lowered to 18%, we would come and say no, 32% or 35%. Gentlemen, there is something that doesn’t seem right here. So if we can live with 25%, it’s more or less freezing the trend, and maybe we’ll add another 1% along the way,” Simhon was quoted as saying.

The government’s representatives, Gabai and Simhon, won out. The committee ultimately agreed not to allow the rate to drop to 24%, but left it at 25%.

Antitrust Authority chief economist Shlomi Frizet was unhappy about the approach, but acquiesced. “If the Tax Authority comes and says: Friends, conceptually, from the standpoint of sharing the burden, and from a moral standpoint, I think it’s right, but it’s complicated. It’s expensive. It doesn’t bring in a lot of money,” he was quoted as saying as the discussion turned to inheritance taxes. “It’s okay to say it, but let’s know what we’re talking about here.”

Several committee members voiced concern that the government was unable to stand up to interest groups, and would not be able to pass their recommendations regardless.

“We as a government are not really succeeding in standing up to the narrow interest groups,” Yehuda Nasradishi, director of the Tax Authority, was quoted as saying.

Michal Abadi-Boianjo, the Finance Ministry’s accountantgeneral, said blame for inaction lay with elected officials. “At the end of the day it’s the Knesset and the government, and whether the nation doesn’t know how to stand for it.”

The Calcalist report also detailed how long discussion on the decline of the quality of welfare services, despite being agreed upon nearly unanimously, were not addressed in the committee’s final recommendations.

An unnamed committee member responded to the Calcalist report, saying “I think that if we go back in time, we would come to similar conclusion.”

Given the budget constraints, he added, “we did the best we could.”

He also pointed out that the government was making its own political decisions, taking up only certain parts of the recommendations to implement into law. Things such as promoting haredi male workforce participation, he noted, were not among them.

“These did not come up in the government out of its own considerations. I think it’s pretty clear what they were,” he said.