It isn't fair to grumble about Yair Rabinovitch and his tax-reform team. They did exactly what they promised to do: design a small-scale, partial, limited, awkward reform one that can be pushed through parliament, instead of fading away like all its predecessors.
The reform the team officially presented to the finance minister on Wednesday begs as many questions as the solutions it offers. It suggests that the Rabinovitch panel wriggled out of the seriously sticky subjects, resulting in a half-baked list of recommendations.
As is true of all tax reforms, implementation will be tough. Even after the recommendations are enacted into law, the tax ordinance will be an unwieldy document riddled with loopholes and inconsistencies and reeking of social injustice. It will be a treasure trove of opportunities for the well-heeled to avoid their duty.
Robin Hood who?
Examples of subjects omitted in part or in full abound. Estate tax, for instance, never even came up, even though the finance minister kept insisting the reform would take from the rich and give the middle class.
No decisions were reached on taxing gains from provident funds; instead the panel decided to set up a panel. The training funds remained inviolate, and will stay that way that's what torpedoed the last stab at reform.
Other problems were evaded through mechanisms so protracted that they essentially defer the issues for years. Reducing income tax the "cherry" on the reform cake is spread out over six years, to 2008. Until 2005 the changes are minuscule. Only from 2005 do marginal rates really begin to dwindle, but all that is based on the assumption that gross domestic product will increase by no less than 4% a year on average.
How likely is that?
Moreover, in Israeli reality, the politicians will have all the time in the world to hack at the targets and schedules.
The wealthy will barely feel the reform, and the middle class won't feel its rewards either, for years.
Yair Rabinovitch and Finance Minister Silvan Shalom excuse their unfinished result by noting that at least it stands a chance of making it through the Knesset.
Politically, that may be true. The finance minister isn't lying when he declares that he knows Israel's legislators and their limitations. The more complete, just, professional and consistent reform submitted two years ago by the then treasury director-general Avi Ben-Bassat failed to overcome the parliamentary barrier.
Ben-Bassat had demanded that his reform be voted upon as a package deal. Appropriate as his demand was, it also killed the deal. The Rabinovitch panel learned from Ben-Bassat's mistake.
The panel is prepared to handle political pressure, and introduce changes and update figures, as long as the basic concept of tax on capital in exchange for tax on labor is accepted. Better a partial, problematic reform than none at all, they feel.
An untenable position
But their position is morally indefensible, and it may be practically untenable too. In Israel today doing half a job that's half-justice just because it can "get through Knesset" has become the norm, on the grounds that the alternative is worse.
That's what happened with the budget cuts, which were supposed to be deeper. They were supposed to savage the budget sections that depress economic growth, such as subsidies and regional tax breaks. That's what happened in regulation of the media and of telecommunications, where the wealthy get discount after discount because the companies are in lousy shape and otherwise "they'd go bust, leaving us with nothing".
The budget and the Rabinovitch reform were both designed by people with politics on their mind, first and foremost, then substance and perhaps their own hides, too.
It shouldn't be that way. A long-term structure such as tax reform should be done the way Ben-Bassat did it: first strive for substantive excellence, then if even after a fight it really cannot be achieved then, only then, should some ground be given.
Yair Rabinovitch and Finance Minister Silvan Shalom believe the panel's recommendations will pass the three Knesset votes quickly. The public is now ready for tax on capital market gains. It may help that the Shas party, which torpedoed such tax two years ago, has weakened.
If so perhaps the leaders should have let a few more weeks pass in order to push through a more complete, just reform. Nor would the Rabinovitch panel have had to burn the midnight oil. Most of the solutions were right there to hand, having been designed two years ago by Avi Ben-Bassat.