With the Government Divided, 2016 Could Be a Wasted Year Israel's Economy

The ultra-Orthodox are feuding with the religious Zionists, and Likud with Kulanu. And don’t forget that tiny Knesset majority.

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Protesters wear masks depicting Prime Minister Netanyahu, Finance Minister Moshe Kahlon and outgoing Economy Minister Arye Dery at a rally against the gas deal in Tel Aviv, November 7, 2015.
Protesters wear masks depicting Prime Minister Netanyahu, Finance Minister Moshe Kahlon and outgoing Economy Minister Arye Dery at a rally against the gas deal in Tel Aviv, November 7, 2015.Credit: Ofer Vaknin

As 2016 gets underway, Prime Minister Benjamin Netanyahu faces not only a worsening security situation but also a coalition government racked by infighting. This bodes ill for the government’s ability to push through socioeconomic policy this year.

Economically, 2015 was a lost year due to the March general election and the lack of an approved state budget until November. This year has begun with an approved budget, but there’s uncertainty over whether the government can enact reforms to jump-start the economy – because of the narrow two-seat majority as well as the infighting.

The coalition even lost a confidence vote in the Knesset, but the numbers weren’t sufficient to bring down the government. Still, it’s alarming when the government can’t even muster a majority for such a vote.

In any case, Netanyahu may remain in office because bringing down a government via a no-confidence vote requires not only the support of 61 of the 120 MKs but also an agreement on who will replace the prime minister. Thus far he has dodged those bullets.

So the government is running on inertia and no one knows how long it will last. At this stage, no coalition parties are pushing for a new election because the party leaders, Kulanu’s Moshe Kahlon, Shas’ Arye Dery, Habayit Hayehudi’s Naftali Bennett and United Torah Judaism’s Yaakov Litzman don’t know if they’d keep their jobs.

But the coalition isn’t about to change; there doesn’t appear to be any way to expand it. Yesh Atid chief Yair Lapid has begun campaigning for the next election; he holds about two campaign gatherings a week. And Yisrael Beiteinu leader Avigdor Lieberman told his party’s MKs this week: “I don’t think there’s another government in this Knesset, and we need to go to elections rather than engage in wheeling and dealing.”

Meanwhile, the opposition leader, Zionist Union chief Isaac Herzog, expressed his wish that Netanyahu will get lots of free time as a private citizen.

So it’s no wonder that at a meeting with Knesset reporters, Finance Minister Kahlon complained that it’s hard to function with a coalition of 61 MKs.

“I sweated a lot before the budget passed,” he said. “I sweat before every bill. I’d be lying if I said I hadn’t talked to an opposition party about helping me pass regular legislation.”

Kahlon commented on the rout that the coalition suffered last week. A bill proposed by his party’s Yifat Shasha-Biton to lower the minimum age for entering the workforce was defeated in a preliminary vote.

He noted the failure of coalition MKs to vote. “Minister Ofir Akunis didn’t come up to vote and Oren Hazan did his own thing and didn’t vote,” Kahlon said about the two Likud members. “It’s not easy to function that way.” (Hazan was suspended from the Knesset at the time.)

Kerfuffle over corporate tax

Even passing legislation that presumably faced no opposition has required an effort by Kahlon. On Sunday, he had to stay at the Knesset late into the night to muster a majority to lower corporate tax to 25% from 26.5%. Opposition MKs from Yesh Atid, who in the parliament’s last term supported increasing the rate, supported reducing it this time around.

Netanyahu’s coalition is stung by disagreements between United Torah Judaism, an ultra-Orthodox party, and Habayit Hayehudi, a religious-Zionist party. There are also disagreements between Netanyahu’s Likud and Kulanu a bit to the left.

Last week’s debate in the Knesset Finance Committee on budget transfers laid bare the lack of trust between United Torah Judaism and Habayit Hayehudi. This was reflected in the outburst by the committee’s chairman, UTJ’s Moshe Gafni, who accused Habayit Hayehudi’s Bezalel Smotrich and his colleagues of being “greedy Sicarii” – zealots who fought the Romans.

The animosity between the two parties is explained in part by ultra-Orthodox anger over government cuts to yeshivas in the last government by Lapid, then the finance minister. He had Habayit Hayehudi’s support, while United Torah Judaism and the other ultra-Orthodox party in the Knesset, Shas, opposed.

Last week Gafni refused to have the committee vote on transferring 317 million shekels ($80 million) to the World Zionist Organization’s settlement division after Bennett refused to returns funds that had been taken from the ultra-Orthodox in the last Knesset. The money had been given to institutions identified with religious Zionism, Habayit Hayehudi’s core constituency.

The vote was deferred over and over and the allocation to the settlement division was ultimately approved only after Gafni got Bennett’s consent to reinstate funding for the ultra-Orthodox institutions.

The crisis between Gafni and Bennett hasn’t escaped the attention of Netanyahu. At every weekly meeting at his office attended by the coalition leaders, he begs Gafni and Bennett not to attack each other – and not at press briefings either. Still, no resolution appears in the offing.

The friction between Likud and Kulanu has been a bit tamer. Kulanu objects to legislation proposed by Likud MK Miki Zohar that would further restrict the opening of businesses on Shabbat. Sources in Kulanu also say the head of the Histadrut labor federation, Avi Nissenkorn, is influencing Likud cabinet ministers and MKs via the Likud chief at the Histadrut, Roi Sharabani.

They say a mandatory arbitration law proposed by Likud MK Sharren Haskel is stalled and won’t be put to a vote by the Ministerial Committee for Legislation due to the Histadrut’s opposition.

Also, a bill that would open standards testing to competition was proposed by Kulanu whip Roy Folkman and passed a preliminary vote. A dispute then arose over its referral to committee. Folkman said Nisssenkorn had threatened that the bill would be sent to the Economic Affairs Committee, which is chaired by Eitan Cabel of the opposition Zionist Union.

Nissenkorn denied the allegation, but Kulanu MKs are concerned that the legislation will be referred to the Economic Affairs Committee – and die. Kulanu is also angry about what it claims is Likud’s collaboration with the Histadrut on the matter.

Mayor making problems

On the other hand, Likud’s David Bitan, the chairman of the Knesset House Committee, complained that Kulanu was seeking to refer almost all its proposed legislation to a Knesset reform committee headed by a Kulanu MK, Eli Cohen.

Some of the reforms Kahlon aims to push are hitting opposition from Likud-linked mayors who are putting pressure on Likud MKs. One reform bill would let large apartments be subdivided. The mayors oppose it, saying their cities’ additional residents would need additional municipal services without an increase in municipal tax revenues.

Another bill would grant local governments funding from the national government based on the strength of their finances. When approving a map to set the tax benefits for outlying parts of the country, Likud mayors put pressure on Knesset members to win benefits for their locales.

Still, Kahlon is determined to pass reform plans that he promised during the election campaign on issues including housing, the cost of living and pension reform. But it’s possible coalition MKs will fall in line with the banks or other powerful interest groups and try to stop the process.

Under such circumstances, Kahlon could try to pass reforms with the support of opposition MKs. And during the year, when the Knesset Finance Committee receives requests for supplemental government allocations, MKs from limited-issue parties will have to be nurtured to garner majority support.

Meanwhile, Netanyahu has asked Kahlon to get next year’s budget approved between April and June this year, amid concerns that the coalition could fall apart. Netanyahu seeks to pass another two-year budget that would run through 2018, but on Sunday Kahlon announced that this wasn’t an option.

He added that in the next election, Kulanu would run on an independent ticket as it did in March and not on a joint slate with Likud. He wouldn’t even rule out running with former Likud cabinet minister Gideon Sa’ar, pumping up Likudniks’ criticism of Kahlon.

Likud also isn’t terribly enamored with the BDO Ziv Haft survey showing that 82% of Israelis believe that Kahlon’s appointment as finance minister was the most significant economic development of 2015. Likudniks don’t want to help Kahlon repeat this feat this year.

But if Netanyahu doesn’t manage to stabilize the coalition and lead the implementation of economic reforms, the coalition parties’ election promises to reduce the cost of living will come to naught. Then 2016 will also have been a lost year for the economy.