In Election Economics, Netanyahu Has a Fear of Showing Weakness

There is no responsibility in this move, but rather a cynical step that threatens stability and announces the start of the election year.

Nehemia Shtrasler
Nehemia Shtrasler
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Nehemia Shtrasler
Nehemia Shtrasler

Prime Minister Benjamin Netanyahu felt a strange tingling in his fingers on Tuesday. It had been two months since he last beat up on Finance Minister Yuval Steinitz, so he was feeling restless. It was time for another slap.

So the Prime Minister's Office released a statement that the king had decided to raise the budget deficit for 2013 to 3 percent. No one mentioned that the evening before, Steinitz had recommended to Netanyahu that Israel raise the deficit to 3 percent. Steinitz wanted to make the announcement on Wednesday at an annual economic conference at the Dead Sea, but Netanyahu stole the show from him. Again.

That, of course, isn't the most important part of the story. The important part is the decision to raise the deficit to the dangerous level of 3 percent, the top limit set for countries in the European Union.

Behind the decision lies a bitter dispute at the Finance Ministry between the budgets division, which was pushing for 2.5 percent, and ministry director general Doron Cohen and Steinitz, who wanted 3 percent - because that would require fewer taxes and fewer draconian measures. And 2013 is an election year, of course.

But even that's not the whole story. The deficit for next year was supposed to be just 1.5 percent. That was in the plan Netanyahu and Steinitz committed to three years ago. Now, however, they can't deliver the goods. Over the past three years, they have increased spending with abandon. For two years it worked somehow, but ultimately such conduct blows up in your face. That's what's happening now.

It turns out that although spending for next year can grow by NIS 14 billion, Netanyahu and Steinitz want to increase it by twice that amount, which would require NIS 14 billion in cuts from elsewhere in the budget. Netanyahu and Steinitz don't want to make cuts. It shows weakness. They also don't want to raise taxes, which isn't popular in an election year.

Raising the deficit, however, is even worse. Against the backdrop of the world economic crisis, an increase in the budget deficit will lead to a rise in interest rates over the long term. That in turn will mean that households pay higher mortgage rates. Companies will pay more for capital. Investment will decline and unemployment will rise. Which means the weaker segments of the population and the next generation will pay the price.

The funniest part was hearing Netanyahu calling the move "fiscal responsibility." There is no responsibility in this, but rather a cynical step that threatens stability and announces the start of the election year.

Benjamin Netanyahu and Finance Minister Yuval Steinitz have a laugh during a Knesset plenum. session Credit: Emil Salman

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