Moshe Kahlon: Netanyahu and I Signed a Contract, He Promised Not to Interfere

In an interview with TheMarker summing up nearly a year as finance minister, Kahlon says he’s happy with the law capping finance executives’ pay and criticizes the Bank of Israel.

Finance Minister Moshe Kahlon walks past a giant projection of the Israeli flag.
Marc Israel Sellem

Finance Minister Moshe Kahlon is certain his plans will lower housing prices in the long term, he has no doubt the banks are mad at him because of the new law limiting executive pay in the finance sector but has no regrets about the law and he still hopes to expand the ruling coalition, even though that’s impossible at the moment.

In an interview with TheMarker TV and the Knesset Channel, Kahlon spoke about the caps on financial executives’ compensation, which has created a lot of uncertainty.

“The banks are part of the economy. They are an important institution, but they must live with the atmosphere and values of Israel. These people took salaries in the millions for themselves. I came in as finance minister, and with the help of the Knesset we passed a law capping wages at 2.5 million shekels ($663,000) a year. I have no doubt the banks are mad at me. I also receive such messages, but I came to serve the public and not the banks.

“I think I reflected the things the public feels, and that is my job, to serve the public. No one likes it when you affect them. It’s impossible to come one night and say on television ‘why do bankers make so much money, 7 or 8 million shekels a year,’ and after that when I lower their salaries and enact the law to limit executive salaries they ask why they’re being attacked.”

Zion Kenan, the CEO of Bank Hapoalim, announced his resignation immediately after the law passed. Are you worried that additional bank officials will step down?

“If that was really his reason for leaving, that’s sad. If these people are so talented, they can enter the public sector, with a gross salary of 35,000 to 42,000 shekels gross a month. The way they contribute to financial institutions, they can contribute to the public and the state too.”

You’re not worried the bankers will go abroad to work?

“Anyone who wants can leave, but I don’t recommend it. I’m not a career adviser, but in my opinion an annual salary of 2.5 million shekels is a lot of money. As talented as you may be. Anyone who leaves their job over [the salary cap] presumably has his own reasons.”

Divorcing the banks from credit-card firms

You disagree with Bank of Israel Governor Karnit Flug over separating the credit-card companies from the banks.

“We are going to create competition. For 30 years they’ve been talking about reducing land prices and we did it. For 30 years they’ve been talking about separating the credit-card companies, and now we’re doing it. Our job is to act. I believe that in a week we’ll decide who will supervise the credit-card companies after they are separated from the banks. There is a range of considerations because we’re talking about supervising people’s money, a very grave matter.”

What pressure do you face over divorcing the credit-card companies from the banks?

“Actually, there’s been no pressure on me. I’m a little insulted.”

Why is that? Maybe because your Kulanu party didn’t borrow from the banks for its election campaign?

“Kulanu got no money from the banks in the last election. The banks didn’t extend credit to us, and I assume we won’t need it [in the future].”

Did you apply for credit?

“We applied to borrow 2.5 million shekels, and they didn’t agree to give it. It’s not important which bank refused.”

In recent years, Bank Hapoalim has issued loans to political parties. Starting after the last election, the Knesset extends credit to the parties, which are prohibited from borrowing from the banks.

Kahlon, who as communications minister in a previous government led a reform that introduced competition to Israel’s mobile services sector, addressed the Antitrust Authority’s rejection of the proposed merger of Cellcom Israel and Golan Telecom.

“We must not allow this merger. It is a bad message that you receive [cellular] frequencies for free and after that you sell them and quit.

“I am pleased that Prime Minister and Communications Minister Benjamin Netanyahu accepted my position. The existence of five communications companies creates competition and we need to find other ways to allow Golan Telecom to continue... to operate and provide good service to its customers. Michael Golan has not kept his promise to build an independent network. It is possible to hold a hearing for him in the Communications Ministry, it is definitely not a matter for the Finance Ministry.”

When will housing prices fall?

“The ‘Mehir Lemishtaken’ program [or target pricing, in which contractors are awarded the bid based on offering the lowest price for an apartment] , which we are certain about, will have an influence on housing prices at the end of the process. I estimate that the minute a critical mass of apartments accumulates as part of the plan, it will affect prices. But it will take a little while, I don’t have any clear forecasts.

“Today, slightly fewer than 1,000 young couples already bought apartments for between 200,000 and 300,000 shekels below market. These are 376 apartments in Lod, 240 in Afula, this week we gave the order to hold a lottery for an additional 873 apartments. Right after Passover we’ll have a lottery for another 1,000 apartments. The important thing is that the failure in the housing market has continued for a decade, I received this crisis ‘as is,’ but in the end tens of thousands of young couples will have apartments.

“What raised housing prices is the price of the land. So we fomented a revolution, and there’s no longer any land profiteering. All the land for high-density construction is going to young couples, not to developers, tycoons or contractors. Today the contractors receive land almost for free, which is why apartments can be so cheap.”

Flug criticized this housing plan.

“Many people lost the hope of ever buying a home, and we have given it back to them. Quite a number of people who won the lotteries as part of Mehir Lemishtaken did not plan to buy a home. They never thought that for 620,000 shekels they could buy a 100-square-meter apartment in Afula. My goal is that even if you came from a slightly lower economic group and you have 100,000 shekels you can buy an apartment. I think Mehir Lemishtaken will not cause a rise in prices, [Flug] thinks it will, we will meet at the end of the course.”

In the deliberations on the 2015-16 state budget, Flug thought it was necessary to raise taxes by some 8 billion shekels, even though in the end you lowered taxes by 7 billion shekels.

“[Flug] was mistaken in her estimates. I have a lot of respect for the Bank of Israel, but in the end the finance minister has public responsibility. The Bank of Israel is in charge of maintaining the stability of the banks and the financial system, and the finance minister is in charge of the financial stability of citizens, workers and small businesses that are suffocating under the burden of interest rates and the credit crunch. The fact is that the Bank of Israel has left the situation the way it was, and no new bank has been established. The credit-card market is centralized. Everything that is happening today is under the closed eye of the Bank of Israel. So my job is different and there is tension.”

In the end will you support a two-year budget for 2017 and 2018, even though you oppose it?

“On Sunday I talked with the prime minister about it, and I think it’s a mistake to have a two-year budget. Right after Passover we have a meeting with the prime minister on the budget, and I will continue to try to convince him, until the last minute, not to do a two-year budget.”

Netanyahu won’t give in, because a two-year budget guarantees that he stays in power through mid-2019.

“The prime minister thinks a two-year budget is a guarantee of political stability, but if we had a crisis like what happened with David Amsalem and Avraham Nagosa [Likud Knesset members who boycotted the Knesset plenum for four weeks to protest the state’s suspension of its Ethiopian immigration program], what does it matter that the budget is approved through 2027? It’ll be the same thing if there’s a crisis surrounding the cabinet resolutions on the [economic] reforms.

“In other words, if we have an approved budget for one year and all the MKs are obedient, we have no problem. That’s why I think a two-year budget isn’t good, and I’ll continue to try to persuade the prime minister until the last minute. But I’m not hiding the fact that I have an obligation to support a two-year budget. As part of the coalition agreement I received a toolbox, and the prime minister has kept all of his commitments to me, at least so far.”

How is your relationship with Benjamin Netanyahu?

“We work well together. There’s friction here and there, but everything is fine. When I signed the coalition agreement last year with the prime minister, because I know how these systems work and I came from the political system, I signed the prime minister onto a document that said he will not interfere with my reforms... I have an agreement with him that he doesn’t interfere, and when he does interfere, I take out the paper and show him, and the matter is closed.”