Eretz Yisrael Time

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Wednesday, May 13, 2009
Over the long term Netanyahu's policies seem to be economically sound, but this time, like last time the poor tend to get hurt worse with his corrections and improvements.

Just to discuss his VAT corrections, Bibi will be temporarily raising VAT from 15.5% to 16.5%.

Last time he raised it from 17% to 18% for a while, and then dropped it down to 15.5%.

The only problem is, during these temporary hike, the people the hikes hurt the most are the poorest.

As it is, prices are rising. Everyone is looking for money, and this creates a chain reaction of stores and businesses increasing prices to make up for what they need to cover their own rising costs.

Obviously the government needs money, but increasing a tax that will directly (and indirectly) increase the cost of goods across the board is not the solution.

How about the government tightens its belt for a year, and lowers taxes significantly (and that means more than a percent or two)?

How about giving the people a break, a chance to recover, and a chance to spend so we can get the economy moving?

That will help the economy in the long term more than a temporary small hike in VAT to make up for a bloated government's spending.

UPDATE: I just learned that the current budget proposal includes an across-the board 5% cut to the budgets of all of its ministries for 2009 and 2010. Of course, I'm not sure how that jives with an expected increase in government spending by 3%.

By the way, I've discussed this in the past, but the government is the biggest buyer in Israel, and decreasing government purchasing, without creating more opportunities for alternative markets (i.e. making it easier to open a business) also hurts the economy.

I will need to discuss all this in depth in another post.

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