Zero-VAT or Zero-sum? Gloves Come Off in Budget Battle Between PM and His Finance Minister

The fight over the budget, and Yair Lapid's zero-VAT plan, is reaching a climax. But in the cabinet and opposition alike, most of the calculations seem to be centered around the likelihood of an election.

Member of the Knesset Moshe Gafni, from the United Torah Judaism party, related this week, during a stormy session of the Finance Committee, that Prime Minister Benjamin Netanyahu had told him and his UTJ colleague, MK Yaakov Litzman, that he is “unequivocally” against Finance Minister Yair Lapid’s so-called zero-VAT scheme. Afterward, the Prime Minister’s Bureau was silent for many hours. It was later noted that calming messages were exchanged between the two bureaus (those of Netanyahu and Lapid) and that all was resolved satisfactorily.

Except that it wasn’t. The confrontation between the prime minister and the finance minister has escalated. In other words, the masks have been torn away, the gloves taken off.

Sources close to Netanyahu, and politicians who met with him in the past two days, heard him say that the zero-VAT plan, which would give certain first-time home buyers an exemption for the 18-percent value-added tax on new residential construction, would lead to an economic disaster and could even lead to an early election. Not only would the scheme not reduce housing prices, it would raise them, according to people in Netanyahu’s milieu. Insistence on its implementation would cost the economy 3 billion shekels (more than $830 million) a year and raise the deficit target, which in turn would lower Israel’s credit rating, causing a loss of another 3 billion shekels a year, as a result of higher interest rates and the like.

“Anyone who submits a budget like this doesn’t really want to get it passed,” said people in circles close to Netanyahu. “[Lapid] is preoccupied with political scenarios. Either the prime minister will give in to him because he doesn’t want an early election, in which case, Lapid will be able to tell his voters: I made Bibi do my bidding, I kept my word by not raising taxes and by implementing the zero-VAT plan; or – Lapid will leave the coalition, resign as finance minister and tell his constituency: Hey, I wanted to help you by not raising taxes and eliminating VAT on new homes, but the prime minister blocked me.”

The sources added, “It’s true that Netanyahu initially backed the zero-VAT idea. But circumstances have changed since then. We had a war. Security is now the top priority. Lapid should have recalculated and not insisted that he was obligated to stand by his promise. No one would have blamed him. You have 3 billion shekels? Give the money to Iron Dome. His refusal to show flexibility, to adapt himself to the new situation, shows political motives. He wants to come out of all this like a king, and to hell with the economy.”

Yesterday morning it was announced that there will not be a cabinet meeting this Sunday. The ministers were informed that Netanyahu will be engaged in marathon budget talks intended to resolve the crisis. It’s the second cabinet meeting in a row to be canceled. The reason is a bit peculiar. The agenda for this coming Sunday was not the budget but the new conversion-to-Judaism law, which the ultra-Orthodox cannot abide. Cancellation of the meeting will delay passage of the legislation. Perhaps by the end of the week it will have become apparent that the government of Israel is unable to pass the budget – which would mean an early election, in which case Netanyahu certainly has no reason to widen the rift with the Haredim. He will need them as part of a cabinet rotation in case Lapid leaves – or, as part of a post-election scenario, to recommend to the president that Netanyahu be invited to form the next government. It would be interesting to know what Netanyahu, Gafni and Litzman agreed on in their recent meeting, and what the prime minister and Shas leader MK Aryeh Deri decided in their (separate) meeting.

All signs are that Netanyahu is already preoccupied with the next election. The arithmetic is simple. If he has Naftali Bennett’s Habayit Hayehudi and the Haredi parties, he’s in excellent shape. In that case, everyone else will follow, as day follows night – Labor’s Herzog and the new party of Moshe Kahlon, and Avigdor Lieberman and Lapid – and he will be able to pick and choose among them like a kid in a candy store with an unlimited budget.

It’s not that Netanyahu is longing for an election. The risks are great. Who knows whether a coalition will arise that will set itself a holy aim of preventing a fourth Netanyahu term, no matter what? For example, the close coordination between Lapid and Lieberman is driving the premier crazy; they meet and talk all the time. Whatever one of them hears from Netanyahu is immediately passed on to the other. He’s certainly asking himself what plot they’re cooking up for after the election.

Still, the current Knesset has only been in existence for 20 months or so, and the MKs will not be pleased to dissolve it so early. It would be almost unprecedented. This writer will not fall out of his chair next week if, on the assumption that a budget formula is not found, all manner of scenarios rear their heads, some of them quite wacky, positing creation of an alternative coalition in this Knesset, without Netanyahu. Anyone but Bibi.

The next big thing

In his remarks at the conference of the nonprofit Citizens’ Empowerment Center, held at Tel Aviv University on Tuesday, former cabinet minister Moshe Kahlon leveled businesslike, logical, moderate, nonmilitant criticism at Lapid’s zero-VAT idea. “Let’s say there are 5,000 apartments today, and 50,000 buyers,” he said. “What will happen to prices? They will go up.” What economists are trying to explain with big, jargon-laden phrases, Kahlon said in his way.

Regarding the dispute between Bank of Israel governor Karnit Flug and Lapid, and between Netanyahu and Lapid, over whether to increase the deficit or raise taxes, Kahlon said nary a word. Who knows? Maybe in another six months, he will be the finance minister. Why rile people?

Kahlon’s remarks at the conference were widely reported. There’s no doubt that he’s the next big thing – like Lapid was the next big thing in the 2013 election, and Labor’s Shelly Yacimovich before him, until he stole her thunder and made her the former next big thing.

Polls conducted during and after the war in Gaza gave Kahlon a projected eight to nine Knesset seats – a fine accomplishment for someone who doesn’t yet formally exist in the public eye. His potential is 14-16 seats. And that’s even more amazing, considering that he is not trying to sell himself to the masses at present, but going from house to house, conference to conference, event to event. By himself. He could strike a deal with two or three candidates and recruit them to help build a party, but he’s treading very carefully. He won’t present his list of Knesset candidates until an early election is called.

Kahlon’s emphasis will be on social-economic issues, as a center party. He has no intention of hooking up with Herzog, Lapid or Tzipi Livni. There aren’t many in Likud who know Netanyahu from as close-up as Kahlon. But even after all the black cats that passed between them, he doesn’t hate Netanyahu. He just thinks he is a bad prime minister whose time has passed and who needs to go home.

Surgical analysis

Opposition leader MK Isaac Herzog was in Washington this week. He met with close advisers of President Barack Obama, with senators and members of the House, and with the Clintons in their living room. It’s his impression (which doesn’t purport to be objective) that the administration has despaired of Netanyahu. That doesn’t mean there will be no more talks and meetings, if necessary, during Obama’s remaining 28 months in the White House. But the enthusiasm is gone, along with the hopes and expectations.

“With every minute he continues to sit in the Prime Minister’s Office, Netanyahu is causing Israel serious damage,” Herzog said by phone from Washington. “That’s why I was received here as an alternative. They wanted to get to know the alternative.”

Those words sound somewhat ironic in view of what happened at a meeting of Labor’s Knesset faction at the beginning of the week. The party’s Young Guard, whose leaders were invited to the gathering, pushed for an “aggressive” campaign for a new government, which would play up Herzog’s candidacy for prime minister. The MKs listened, nodded, muttered and commented in one way or another. Until Shelly Yacimovich, Herzog’s predecessor as party leader, took the floor.

She launched into a monologue that left the MKs gloomy and reflective.

“Theoretically, the conditions are ripe,” she said. “Netanyahu is weak, his coalition is conflicted, our faction is top-notch and most of our MKs have high public visibility.” That was the end of the back-patting. Following are excerpts of what she said next, in the leader-bashing part of her remarks:

“Still, we have to look squarely at the situation. We are getting 12 seats in the polls, 14 on a good day, without Kahlon [in the race]. If you launch a campaign to change the government, you have to be very serious and to know that you might regret it a moment later. I know, because I was in a similar situation when Labor was in far better shape and we were head to head with Likud [at the start of the election campaign in the autumn of 2012].

“We had terrific polls,” Yacimovich went on, “and there was a similar push to say explicitly that we were out to form the next government. I took that route, but it turned out to be a mistake. And if that was a mistake, then when Buji [Hezog’s nickname, and she said “Buji,” not “Labor”] gets 12 seats in the polls, it’s a far bigger mistake. Besides which, we always get fewer seats than the polls predict. Our job now is not to conduct a campaign, but to look for substance and content that will give the voters a good reason to vote for us.”

Silence descended upon the room, according to one of the participants. It’s not that the MKs heard some incredible piece of news that they weren’t familiar with. But the conciseness, the brutality and the scalpel-like sharpness with which the analysis was delivered drove the message home powerfully. (“The remarks were made in a closed forum,” Yacimovich told me later, “and there was no intention for them to be made public.”)

MKs are political animals. The ones from Labor cloaked themselves in silence and pondered the possible results of the next election. If Yacimovich is right, and Labor slides to 10 or 11 seats in the new Kahlon era, which of them will not make it back into the Knesset? And if the union currently being whispered about in party circles, with half of Livni’s faction (namely, she, Amir Peretz and Amram Mitzna) being guaranteed realistic places in the next Labor list, at the expense of three of the party’s precious sons and daughters – which three will have to pay the price?

The participants then toasted the upcoming Jewish New Year and in their hearts undoubtedly prayed that it not turn out to be an election year. Amen.

Civil disappointment

At the end of the month, in Haifa, a welcome and positive initiative will be launched: The Justice Ministry will host an event to encourage the integration of Arab, Druze and Circassian jurists and legal scholars in the ministry’s staff. Completely by chance, MK Ahmed Tibi (United Arab List-Ta’al) received an email invitation to the event. He recalled that three months ago, he and Arab academics and jurists had initiated a meeting with senior officials in the Justice Ministry about exactly the same idea: encouraging integration, and so on. His interlocutors at that meeting – Attorney General Yehuda Weinstein and State Prosecutor Shai Nitzan – displayed a positive approach.

Tibi knows this whole subject well, as he headed a parliamentary committee of inquiry on it for five years. But after that meeting a few months ago, he didn’t hear a thing, and if he hadn’t received the invitation to Haifa – by chance, from a friend – he wouldn’t even have known about the event.

So, Tibi, a deputy Speaker of the Knesset, was disappointed. He expected to be invited to the opening event, maybe even to say a few words. Or at least to be consulted, as an expert on the subject. But he was left out.

“We are always being blamed for not dealing with civil issues that are relevant to us – only with foreign policy, with Gaza and with the occupation,” he said this week. “Well, first of all, we do deal with those issues. A lot. I was occupied with this for five years in the Knesset. But when the idea is finally implemented, we’re not there. We are ignored. We could have suggested experts in the field. We could have helped organize the conference.”

Tibi doesn’t blame Weinstein or Nitzan, rather “politicians” in the ministry. Well, a thorough investigation revealed that the only politician in the Justice Ministry, at least officially, is the minister, Livni.

“The idea to hold the conference was raised by the state prosecutor,” the Justice Ministry said in response. “The attorney general welcomed the idea … The meeting will be held with the participation of the higher echelons of the judicial establishment and will not have a partisan-political character … MK Tibi and attorney Osama Saadi [who joined Tibi in the Justice Ministry meeting] will be invited to the event. Registration is also open to the general public.”

Erdan’s dream job?

The possibility that Communications Minister Gilad Erdan will become Israel’s next ambassador to the United Nations has been preoccupying Likud for months. Erdan wants the job very much, but fears that disastrous consequences might ensue if he absents the local political scene for three whole years. He’s telling confidants that he hasn’t yet made a final decision.

Erdan wouldn’t have a hard time winning a top spot in the Likud primary or being appointed a minister in the next government. But those prospects apparently aren’t as alluring now as in the past. He’s fantasizing about the big glass building in New York as his next workplace. Does he know something we don’t? Or is he just fed up with political life here, with the constant need to keep the perspiring masses of the party faithful happy?

Just two months ago, new-old Likud MK Carmel Shama-Hacohen left for European shores – he’s now Israel’s Paris-based ambassador to the OECD – two months after having returned to the Knesset, replacing Reuven Rivlin, who resigned from the House upon being elected president. Shama-Hacohen was appointed by Foreign Minister Lieberman, who is now offering Erdan the possibility to become UN envoy.

If Erdan leaves the country, his place in the Knesset will be taken by another candidate from Yisrael Beiteinu – a remnant of the former union between that party and Likud – thus giving Lieberman’s party 13 MKs (number 12, Alex Miller, replaced Shama-Hacohen) and lowering Likud’s representation to 18 MKs, one less than Yesh Atid. It’s lucky that the next in line is “one of ours,” people in Likud are saying, otherwise Lieberman would keep pampering the representatives of the shrinking ruling party with dream jobs overseas so as to continue expanding his faction in the House.