Israel's New Finance Minister Promises Painless Reforms as He Takes Over Treasury

Katz also vows to take a 10% pay cut to identify with public’s coronavirus woes

Avi Waksman
TheMarker
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Incoming Finance Minister Yisrael Katz at a government meeting, Jerusalem, November 17, 2019
Incoming Finance Minister Yisrael Katz at a government meeting, Jerusalem, November 17, 2019Credit: Ohad Zwigenberg
Avi Waksman
TheMarker

Yisrael Katz took over as finance minister on Monday, promising reforms that would enhance competition but didn’t get into details. He also offered to take a 10% salary cut.

“There will be a plan,” Katz said in a ceremony marking the transfer of the office from Moshe Kahlon. “It will include reforms, a policy line I believe in, competition – things that, one way or another, take from the powerful and give to the general public, but in the end benefit those in power as well.”

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Bibi swears in his colossal coalition and readies for a courtroom showdown Credit: Haaretz

Katz most recently served a brief term as foreign minister but for many years before that was transportation minister, where in 2012 he signed the Open Skies agreement with the Europe Union that brought much more competition to the airline industry and lower air fares. He also helped lead the effort to create private seaports in competition with state-owned facilities.

Katz pointed to that achievement as a model. “I’m proud that in all the reform measures I’ve undertaken not a single person was fired – in Open Skies, in the [maritime] ports,” he said.

Katz arrives at the Finance Ministry at a challenging time. The coronavirus and the lockdown imposed to fight it have led to a sharp rise in unemployment, while gross domestic product is expected to contract by 5% or more this year.

The previous caretaker government approved an emergency stimulus plan of some 100 billion shekels ($28 billion). That will help tide businesses and households over the effects of the pandemic, but it is expected to widen this year’s budget deficit to at least 10% of GDP.

The new government of Prime Minister Benjamin Netanyahu has 90 days to pass a 2020 budget.

Katz is the first finance minister Likud since 2013, as the post went to coalition partners following elections in 2013 and 2015.

“Should Netanyahu provide strong political backing, this could be one important ingredient towards the success of Katz,” said Bank Leumi chief economist Gil Bufman, adding that cooperation with the ministry’s staff, effective dialogue with the business sector, unions and the central bank “could be what economy needs right now”.

He noted that this situation is reminiscent of a similar one in the early 2000s when the economy was in poor shape and Netanyahu, then a new finance minister, received strong backing from his prime minister, Ariel Sharon.

Katz’s offered to take a 10% salary cut as a gesture in the face of the country’s economic distress.

“As a symbol of my identifying with the state of the economy, in where many citizens are without work or income, and many business owners face collapse ... I’ve decided to cut my monthly salary as finance minister by 10%. At a difficult time like this, we need to set a personal example as elected officials.”

Katz said he had ordered his staff to implement pay cuts. However, the law requires a move like that to be approved by the Knesset Finance Committee. As of 2018, ministers are free to deny themselves pay increments they are entitled to based on increases in average pay nationwide, but the law doesn’t address any other changes in pay a minister may want to take.

Kahlon, who had served as finance minister since 2015 but announced earlier this year he would retire from politics when the new government was formed, expressed pride in a host of programs he had launched to help working families via subsidies and tax cuts. That, he said, put “a lot of money” into the hands of ordinary families that has helped them during the lockdown period

“As a country, we can be proud that we acted so generously. In the United States they gave [each taxpayer] $1,500, which is about 5,500 shekels. In Israel, we even gave the owners of wedding halls 400,000, 300,000 and 200,000 shekels – huge amounts. In Germany, with all due respect, all the aid has been in the form of loans. In Israel, it’s been grants.”

Kahlon’s programs also left Israel running a bigger budget deficit, of 3.8% of GDP last year, which has left it less fiscal space to fight the coronavirus than it could have had if the deficit had come in closer to the target.

Reuters contributed to this report.

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