"Politicians must be allowed to panic. They need activity. It is their substitute for achievement." - Sir Humphrey Appleby
This week’s meeting of the ministerial committee on housing was, on the face of it, a triumph for Finance Minister Yair Lapid. But if anything, it signaled the end of Lapid as we have known him. We are unlikely to be better off for it.
True to his promise to rescue the middle class and ride roughshod over treasury mandarins if need be, young couples (so long as they served in the army, work, have children and don’t plan to spend more than 1.6 million shekels ($456,000)) will be exempt from the value-added tax when they buy a new home.
Officials were aghast and one – chief economist, Michael Sarel – resigned loudly in protest. But Lapid was determined to act. The middle class is crying out to him over the high cost of housing, and he needed a solution that would show instant results.
The housing committee approved the VAT exemption on Monday, along with a package of other home-price-cutting measures.
It’s easy to attack the plan, and no one has hesitated in doing so.
Conventional wisdom correctly says that home prices are climbing because not enough homes are being built to meet demand. The VAT exemption will do nothing to increase the housing stock, but it will almost certainly pump up demand for homes by lowering prices, enabling people who were priced out of the market to get in, and making it easier for buyers to qualify for mortgages.
It will require a complicated regulatory regime to monitor prices and crack down on the black market that will inevitably develop. It will cost the government some 3 billion shekels in lost revenues, which will have to be made up with either higher taxes or reduced spending.
The best that can be said for the idea is that because so few homes and so few people will qualify, it will have little impact on the real estate market at all. In the greater Tel Aviv area, a buyer today would have to search far and wide to find an apartment for 1.6 million shekels or less; even further afield there are relatively few, because contractors prefer to build bigger units that fetch higher prices.
But the important thing about the VAT exemption from the point of view of Lapid is that it attracted a lot more attention than any of the more serious (but unfortunately more complicated) plans to contain housing prices.
Even the tidal wave of criticism did more good for Lapid the politician than any of those other proposals did for Lapid the finance minister. He enjoyed several days of media attention, got to eloquently answer his critics on Facebook, and was able to portray himself as fighting for the little man.
“There are economists, politicians and special interests opposed to lowering VAT. That’s fine because lowering VAT isn’t aimed at economists, politicians or special interests. It’s aimed at the middle class young, who have served in the army, work hard, raise children with love and can’t get through the month,” he wrote on his Facebook page. A politician of the people engaged in combat for every man and woman reading his post, who of course works hard, loves his or her children, etc.
And so now we are witnessing the fall of Yair Lapid.
Capturing the zeitgeist
Lapid’s first 12 months as finance minister marked his rise. Here was a man who hadn’t pursued politics as a career and showed convincing empathy for Israel’s great middle class, even if he himself as a media celebrity didn’t personally share in the concerns and worries of ordinary people.
He captured the zeitgeist of the times during last year’s elections, when economic concerns for a change eclipsed the usual preoccupation with the Palestinians and security, with his demand to know “Where’s the money?”
It’s funny to think that he hadn’t wanted to take over the Finance Ministry at all – though that’s where the money is – and only accepted the post when nothing better was offered.
The fact is, he had no idea where the money was at all. He was an economic neophyte whose ideas on policy were of the level of someone taking over the Foreign Ministry on the principal that we should all stop fighting and learn to be nice to one another.
Remember that early Facebook post where he tells the treasury staff that their job is to be watching out for the middle class? As a good pundit, he even gave it a name – the now infamous (and imaginary) working mother Riki Cohen of Hadera. “I told them, ‘We sit here day after day, talking about balancing the budget. Our job is not to balance Excel spreadsheets, but to help Mrs. Cohen, because she is the one who helps us. It is because of people like Mrs. Cohen that the state exists.”
As if economic policy is so simple. Of course, it isn’t. The budget was, in fact, way out of balance as Lapid learned when he took office, so rather than coming to the aid of Mrs. Cohen, Lapid spent nights pouring over spreadsheets figuring out how much he had to raise taxes and cut spending.
To his credit, he didn’t try to wiggle out of the problem. He fended off his critics, who unfairly accused him of selling out his voters, and took steps that were anathema to a seasoned politician.
Today, far from a budget crisis, the treasury is awash in revenues. In response, Lapid cancelled some tax hikes scheduled for this year, again being slammed for flip-flopping – and again, unjustifiably.
But throughout this fiscal storm, Lapid was indeed acting on his campaign promises. He fought hard for the law drafting the ultra-Orthodox and backed the law introducing more competition into the food industry. Both pieces of legislation are flawed, but they are a step in the right direction. Lapid eschewed conventional politics and had grown into the office he held.
A creature of politics
The VAT exemption appears to be the start of Lapid’s fall. The plan is a creature of politics, not of policy. It aims more at giving the appearance of doing something rather than actually doing something. It was borne more out of panic of the type that Sir Humphrey Appleby, the caricature of a high-level government mandarin in the British television series “Yes, Minister,” observes characterizes politicians.
Lapid can only look at a Channel 2 scorecard this month, based on a poll of 503 people. He ranked 27th for performance among cabinet ministers. Coping with crises and taking the trouble to patiently steer legislation through the cabinet and Knesset doesn’t win you the affection that an easily understandable, well-timed (albeit useless) initiative does.
In retrospect, the budget crisis was oversold and probably didn’t require imposing quite as much as pain it did. That bitter experience may have taught him that politics is a better guide to running the Finance Ministry than listening to the officials who are there to advise him. If so, Lapid will not be the only loser from this lesson: we all will be.
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