Israeli Parties Ooze Economic Plans, but Where’s the Money?

All the parties are generous in promising new programs and costly reforms, but when it comes to saying how it’ll all be paid for, only Meretz gets down to the specifics.

AP

In economics, Yesh Atid has a structural advantage over the other parties: It’s entering the election with four former ministers who held top economic portfolios — Yair Lapid as finance minister, Shay Piron as education minister, Yael German as health minister and Meir Cohen as social affairs minister.

This advantage finds expression in Yesh Atid’s socioeconomic platform, which contains nearly 95 pages of proposals for issues such as education, welfare, health care, housing and Holocaust survivors.

Yesh Atid’s ministers have two years of intensive experience with these issues; they have a great deal of knowledge and a great many plans. Much that these ministers didn’t have time for has been poured into the party platform.

In light of this structural advantage, it’s hard to be surprised when Yesh Atid’s platform contains less obvious proposals, like a subsidy for dairy farmers to lower milk prices, abolishing the water companies and Israel’s version of the SAT, and enabling top students from the country’s outskirts to attend university for free.

The party also wants employment centers for Arabs and ultra-Orthodox Jews, funds for small businesses, and of course to nationalize the Jewish National Fund. That’s a very broad spectrum, with much of the discussion quite wonkish.

Still, people are amazed when they realize what’s absent from those 95 pages. The explanations for why standardized testing must be less costly, or how to cap the salaries of top officials (the decisions about that have actually already been made), have a place inside those 95 pages. But for some reason no room was found to deal with one basic question: Where’s the money going to come from?

In other words, how will a long list of goodies be funded? Yes, the list is long: the subsidy for dairy farmers, the money to encourage employers to provide pension advisers for their employees, or for lowering the costs of the exams. Then there’s the lengthening of the school day, the building of day-care centers, a loan fund for small businesses, vocational education, unemployment payments for self-employed people and guarantees for exporters. And this is just part of the list.

But those 95 pages make no mention of how much these ambitious reforms would be paid for or how much they would cost.

Yesh Atid’s case is particularly egregious because the party takes pride in a well-thought-out and long party platform while ignoring the most critical point. It’s hard to grasp how the party can offer a platform that’s so detailed on the spending side and so slipshod on the revenue side, a factor that isn’t even mentioned in passing.

In this way, Yesh Atid perpetuates Yair Lapid’s flawed track record as finance minister: heaps of social-welfare promises without anyone having to pay for them. This absence casts a heavy pall over the platform. Since none of the promises can be kept without funding, the promises are empty words.

Fuzzy math all around

But why single out Yesh Atid? The disregard of the revenue side is a plague that has spread to all the parties, even if to a lesser extent.

Actually, the three other parties that offer detailed social-welfare platforms — Kulanu, Zionist Union and Meretz — mention the revenue side, but in a fuzzy way. Kulanu’s platform contains a section entitled “Funding sources for fulfilling the platform.” While that may sound promising, it contains nothing but empty promises and a nod to discredited supply-side economics.

“Full implementation of the structural reforms to increase competition, a real improvement of the public service and combating black capital will ensure long-term growth potential,” the party asserts. “The estimated resources to be freed up by doing the above is estimated at around 45 billion shekels [$11.2 billion] over the next five years.” In other words, Kulanu promises sky-high growth that will fill the government’s coffers with tax revenue.

Sure, the reforms Kulanu proposes are impressive and important. It’s the only party to devote an entire section to the need to improve government efficiency, and it doesn’t shrink from shaking up civil servants’ salaries along the way.

But it’s very hard to believe that this will be enough to ensure additional tax revenue of 45 billion shekels over the next five years. These are more high hopes than realistic assessments. In short, Kulanu isn’t really saying how it will pay for everything it promises.

Trajtenberg disappoints too

The author of Zionist Union’s platform is Prof. Manuel Trajtenberg, one of Israel’s best-known economists. He headed the National Economic Council under Prime Minister Benjamin Netanyahu and chaired the committee that produced recommendations on socioeconomic reform after the 2011 social-justice protests.

But his proposals are just as disappointing. Since Trajtenberg couldn’t afford to ignore the question of funding, Zionist Union’s platform contains a section on macroeconomics in which it promises a modest budget deficit while keeping government spending at current levels or perhaps increasing it by 10 billion to 20 billion shekels.

It’s not clear how this pledge fits in with the abundant promises in Zionist Union’s platform, such as a national distribution network for small food manufacturers, a higher minimum wage, increased vocational training, differential value-added tax, a savings account for every child at the government’s expense, increased allowances for single mothers and 2 billion shekels for new day-care centers.

It’s particularly unclear how it corresponds with the promise to keep the budget deficit low while assuring voters there will be “no need to raise taxes over the foreseeable future, especially not income tax.”

In fact, when I perused Zionist Union’s platform, I wondered whether Trajtenberg had become jealous of Lapid. We’re talking about promising a social-welfare budget while insisting that it’s possible to come up with such a budget without raising taxes. That’s a misleading and disappointing display of hocus-pocus.

The only party that treats funding seriously is Meretz, which offers an economic program by former Accountant General Yaron Zelekha, who understands the Israeli economy as much as anyone. But Meretz actually took a risk by showing who would be paying for what and how.

The leftist party’s platform estimates the cost of its campaign promises at 26.5 billion shekels, which it intends to spread out over three years. On the other side of the ledger, Meretz shows how it will raise an identical amount of revenue.

So here’s the list: 5 billion shekels to be cut from the defense budget, 1.5 billion shekels from the settlements budget, 2 billion shekels from the Encouragement of Capital Investments Law, 3.5 billion shekels from instituting a differential corporate tax (increasing the tax to 30% for large companies and reducing it to 20% for small ones), 3.5 billion shekels from tax of 10% to 30% on inheritances above 5 million shekels, 3.2 billion shekels from raising the income tax threshold to 55% for earners of more than 60,000 shekels a month, 3.4 billion shekels from raising the health tax by 1.5% and 4.2 billion shekels by taxing empty apartments and selling public housing.

So we should commend Meretz, which was honest and sincere enough to show who would pay the price for its generous proposals. But Meretz also committed the sin of carelessness by overestimating how much its proposals would be able to bring in — assuming that these taxes can be imposed at all or that 5 billion shekels can be cut from the defense budget.