When exactly did Benjamin Netanyahu make the Jekyll-and-Hyde transition from Mr. Economy to Dr. Election? It’s hard to date it exactly, but the fact is the transition is now complete. To put it bluntly, the leader of the country is now the biggest threat to the economy.
The coronavirus is, of course, responsible for pushing Israel into its worst-ever recession, but that is an act of God. The fact that the government has done a demonstrably miserable job at preventing a second wave of contagion is an act of humans. And, the fact that more than five months into the pandemic, Israel still doesn’t have a budget for 2020, is an act of one human in particular.
It might not seem obvious that between the still-elevated number of new COVID-19 cases and the rising death toll, not to mention the double-digit unemployment rate and businesses driven into bankruptcy, that having a budget in place is such a critical issue. But the pandemic doesn’t alter the timeless truth that money doesn’t grow on trees. Israel has to spend efficiently and effectively to fight the coronavirus or a health crisis will turn into a financial crisis.
The budget is the way to do it, but we haven’t had one since January. The so-called national unity government was supposed to address this problem quickly and, objectively speaking, there was no reason why it shouldn’t have. There is wall-to-wall agreement that the government has to spend heavily to keep the economy afloat, even if it means running up unprecedented deficits and debt. Even Mr. Economy, who was once the standard-bearer of fiscal prudence, acknowledges that.
Dr. Election has a different No. 1 agenda item, which is to give himself a chance to call another election, the fourth in the space of a year and a half, with the hope that this time he can somehow form a religious-right government.
By law, if a government fails to pass a budget in time (this year, it’s August 25), it automatically falls. Netanyahu is happy to pass a 2020 budget now (which in effect means a budget for the last couple of months of 2020) but is resolutely opposed to a two-year budget (which would run from the day it is approved till the end of 2021).
Netanyahu says he opposes a two-year budget because the coronavirus pandemic has created too many uncertainties to plan that far ahead. If you believe that, you are either ripe for an offer to buy the Brooklyn Bridge or you belong to the Likud Party.
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Wednesday’s preliminary vote to push back the August 25 deadline by 100 days is meant to buy time for the government. It won’t buy any for the economy. Unless Dr. Election suddenly morphs back into Mr. Economy, final approval of the law, which requires three more Knesset votes, won’t happen. And, even if Netanyahu does agree to delay the deadline, the dispute with Benny Gantz (who is due to replace Netanyahu as prime minister in November 2021) over a one-year or two-year budget remains unresolved.
Meanwhile, Israel is spending money left and right without any strategy or self-imposed limits. As a result, even though we entered into the coronavirus crisis in good shape financially, we’re on track to exiting it in sad shape.
Compared to other developed economies, Israel hasn’t been such a big coronavirus spender relative to the size of the economy, but it will end 2020 with a yawning budget deficit of 13% of gross domestic product (among the highest in the developed world) and debt equal to 77% of GDP (perhaps the biggest increase in percentage terms).
This debt will have to be paid back, a lot of it by our children and grandchildrn, but a good part of it by us.
When foreign investors loved us
For the better part of the last two decades, and in no small part due to Mr. Economy, Israel has had it good fiscally. The economy was growing, tax revenues were rising even as tax rates fell, budget deficits were contained and our debt burden was shrinking. Israel’s credit rating, which affects how high the interest we have to pay on debt, was strong. Foreign investors were happy to put their money into Israel.
The credit rating agencies have so far shown forbearance as Israel's metrics have headed south, but that’s because they expected the national unity government would provide political stability and get Israel’s fiscal house in order.
The government is proving to be hapless and divided, not because there are fundamental ideological divisions on fiscal or coronavirus policy but because one man, Mr. Election, is determined to keep his political options open no matter what the cost.
There’s no small amount of irony in this. Netanyahu is not only risking the economy for the sake of his political career, he’s undoing his chief legacy of fiscal prudence. In the midst of its biggest crisis since 1973, Israel is being led by someone who has demonstrated in the past that he has the political skills and the vision to cope with the challenge but has decided that his personal interests come first.