Why our high tax burden produces subpar services

Just two weeks ago, for instance, the Finance Ministry issued its annual report on public-sector wages for 2012, which showed that full-time public-sector workers earn an average gross monthly salary of NIS 14,109. That’s over 50% higher than the mean for the economy as a whole (NIS 9,200) and more than double the median (NIS 6,500).

The public sector includes some justifiably well-paid workers – think heart surgeons or the defense industry’s high-tech whizzes. But so does the private sector. And the vast majority of public-sector workers, like their private-sector counterparts, perform far less exalted functions. So does anyone really think the average government employee is so vastly more productive and efficient, or performs so vastly more valuable a service, that he deserves an average wage twice that of his private-sector counterparts?

Last month also brought a reminder of how government workers obtain such inflated salaries: by using their monopoly over vital infrastructure to extort automatic annual raises. That’s a benefit private-sector workers can only dream of: Many go years without a raise, and even suffer pay cuts if their company is ailing. Are public-sector workers really so much more valuable and productive than their private-sector counterparts that they deserve guaranteed annual raises even when their employer, the government, is facing mammoth deficits?

Moreover, excessive salaries are just the tip of the iceberg, as last month’s damning report by the Public Utilities Authority once again revealed. The report said the Israel Electric Corporation’s wasteful practices have cost taxpayers about NIS 1 billion a year over the last decade, and will continue to cost billions for many years to come. But based on the report’s own data, that actually seems like an underestimate.

Inter alia, it noted, the IEC has 2,500 workers who are superfluous by the company’s own admission. Since the average monthly wage cost of an IEC employee came to NIS 35,362 in 2012, those extra workers alone cost almost NIS 1.1 billion a year. The company also expanded its pension obligations by NIS 10 billion beyond what is legally or contractually required, and made excess payments of NIS 12 billion to an employee pension fund to compensate. All this contributed to the company’s massive NIS 70 billion debt, for which the government – i.e., the taxpayer – is on the hook. And of course, we also pay for it through our electricity rates, which have jumped 30% over the last two years alone.

Last month also brought the news that a ballyhooed cut in the 2013-14 defense budget has just been eliminated, so defense spending will once again rise. Clearly, Israel needs a strong army, especially given the growing instability on all our borders. But as other recent news reports show, much of the defense budget doesn’t actually go toward bolstering our defenses.

In 2012, for instance, the IDF overspent its budget for salaries by NIS 1.9 billion. That alone accounts for more than two-thirds of the extra NIS 2.79 billion it received last month. In other words, the IDF gave its officers excess payments that it hadn’t budgeted for, and taxpayers got stuck with the bill.

Additionally, the IDF funds dental care for tens of thousands of its soldiers’ civilian relatives, though this decision was never approved by the General Staff, as required by law. We have no idea how much it costs, since the army itself has no idea, the State Comptroller’s Report revealed. But needless to say, other civilians don’t enjoy free dental care at the taxpayer’s expense.

The really big money, however, lies in salaries, pensions, and payments to disabled veterans, war widows and orphans, which total more than NIS 18.6 billion. That’s over 43% of the entire defense budget, and more than the total budget allotted either the Public Security Ministry or the Social Affairs Ministry. Much of this spending is obviously justified. But a sizable portion isn’t.

There’s no reason on earth, for instance, why soldiers injured in car accidents while on leave should be given the benefits of a disabled veteran rather than the far more modest benefits given other victims of traffic accidents, since the injury was unrelated to their service. This unwarranted decision has significantly inflated the army’s rehabilitation budget. There’s also no reason why accountants, engineers and other noncombatants sitting in IDF headquarters in Tel Aviv should be able to retire with full pension 20 years before their civilian counterparts. Add the fact that an officer’s average monthly pension is 2.5 times that of the average nonmilitary civil servant, and it’s easy to understand how the army’s pension budget has ballooned to astronomical levels.

The above are just a few examples of the unjustified perks given government workers. And this situation imposes real costs: With so much money going into employee perks, little is left over for actual service to the public.

Consequently, Israel’s public services are often subpar. That is why, for instance, Israeli families spend an estimated NIS 1 billion a year – thousands or even tens of thousands of shekels per family – on private tutors to supplement their children’s mediocre public-school education. It’s also why, despite a taxpayer-funded national health insurance system, out-of-pocket healthcare costs have soared in recent years, to 25% of total healthcare spending in 2011 – more than double the percentage in many other OECD countries.

Given this reality, there’s simply no justification for yet another tax hike. True, Israelis have been demanding improved public services. But until the government can show that our tax money is really being used to that end rather than simply to give ever more perks to public-sector workers, it has no business taking any more of the private sector’s hard-earned money.

Evelyn Gordon is a journalist and commentator. Follow her on twitter here.