Coalition Paralysis May Force Netanyahu to Make a Move

The level of trust between the prime minister and Yair Lapid is at an all-time low and looks beyond repair.

Reuters

Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid are due to meet Monday in an effort to resolve the coalition crisis that has also stalled the legislative progress of next year’s budget. For many weeks, differences of opinion between the prime minister and finance minister, and among other senior cabinet ministers, have paralyzed the government and Knesset. There is a growing feeling that a Knesset election may be called soon.

In many ways, the current governing coalition is behaving as if it has already reached the end of its tenure, even though no formal notice of its demise has been issued to the public. According to recent assessments, the election could be held sometime between March and May 2015.

Even if a compromise is struck over the contentious Jewish nation-state bill, undoubtedly some other grounds would quickly be found to break up the coalition. The level of trust between the two stewards of the economy, Netanyahu and Lapid, is at an all-time low, and it is doubtful it can be repaired during the lifetime of this government.

Netanyahu doesn’t believe Lapid. The prime minister can’t govern while remaining afraid of what, in Israeli politics, is known as a “stinking maneuver” – in which an alternative coalition government is formed without new elections, and in which Netanyahu would be left on the outside. That almost took shape two weeks ago.

Netanyahu also doesn’t want to hand Lapid an election reward in the form of the passage of the latter’s flagship plan to exempt qualifying buyers of certain new homes from value-added tax. The prime minister is also afraid that, as leader of Yesh Atid, Lapid could pull his party out of the coalition once the VAT exemption bill is passed by the Knesset.

For his part, Lapid has already begun his election campaign. In an appearance in Tel Aviv on Saturday, the finance minister attacked Netanyahu and claimed that “everything is stalled and the prime minister is standing on the sidelines.” Recently, Lapid has spoken a lot about lowering the cost of living and, particularly, the cost of housing, while keeping an eye, of course, on a potential Knesset election.

And in the meantime, everything is indeed stalled. A month before the start of a new government budget year on January 1, it’s clear that the 2015 budget will not be passed by then. In the absence of final passage of a budget bill, the government will function from month to month based on spending levels provided in the 2014 budget.

A convenient scenario

From a budgetary standpoint, such a scenario might be convenient for the Finance Ministry. The proposed 6 billion shekel ($1.5 billion) supplement to the 2015 defense budget wouldn’t come about and government ministries would spend less.

Perhaps it’s all for the better that Lapid’s zero-VAT bill is also stalled, since there is concern that, if passed, it would cost the government 3 billion shekels in lost VAT revenue without even lowering the cost of housing, as it is designed to do. And the Economic Arrangements Bill – the supplemental legislation that accompanies the budget – is stuck over differences between Lapid and Netanyahu’s Likud party with regard to the idea that some provisions in the bill would be removed and considered as separate legislation.

In the process, however, the stalemate is holding back a number of reforms – among them, changes in the health care sector and provisions for the sale to the public of shares in government companies.

Ultimately, the prevailing paralysis and uncertainty will harm the economy. It would be better to hold an election soon rather than living with a coalition that is not functioning. Netanyahu and Lapid need to stop their quarrelling and come to an agreement on a date. When it comes to the electoral prospects of the two, who are only treading water in the opinion polls, it may be in their own personal interest to hold off, but the economy has no time to spare.

Even if the election is held in March or April, the 2015 budget would only be approved by the newly elected Knesset in July at the earliest. If the election is held later, approval of the budget and ensuing uncertainly will only be prolonged.

There is even the prospect that 2015 could turn out to be a lost year when it comes to advancing the economy. The earlier the election is held, the better the prospects that the new government can save 2015, with a new budget and reforms that will promote economic growth.