Kahlon’s Letting Down His Voters Big Time

The finance minister said last week he doesn’t want to see Israeli housing prices fall drastically, a statement that pulls the rug out from the raison d’etre of his Kulanu Party .

Finance Minister Moshe Kahlon outside the weekly cabinet meeting in Jerusalem, Nov. 22, 2015.
Emil Salman

Finance Minister Moshe Kahlon has a problem. After receiving 10 Knesset seats in last year’s election – based on his vow to break the monopolies, lower the cost of living, reduce inequality and bring down housing prices – the public is gradually discovering every few weeks that he has no intention of living up to most of these promises.

It began with the energy prices, including gas and electricity. Although on the eve of the election he declared that he would fight against the tycoons and monopolies, including the gas monopoly, Kahlon announced immediately upon entering the Finance Ministry last May that he was “prevented” from dealing with the gas market because of a worrisome association with Kobi Maimon (the controlling shareholder of the Isramco natural gas and oil company).

By doing so, and with active support from MKs from his Kulanu faction, he enabled Prime Minister Benjamin Netanyahu to approve a plan for the gas market for the next 15 years that locked in everything Kahlon opposed: a private monopoly without government supervision that will force Israelis to purchase expensive electricity for many years to come; and the entrenchment of a tycoon with almost unlimited means, Yitzhak Tshuva, who will do as he pleases with the country.

The result is that Israel Electric Corporation is now paying high prices for natural gas, and will continue to do so for years to come. This despite the fact that, due to the global price decrease, it could already have bought imported gas for less than it’s paying Noble Energy and Delek.

It continued with the coalition agreements he signed and the issues he decided not to fight for, such as almost anything related to reducing the economic gaps in Israel – a sphere in which Israel occupies one of the last places among OECD countries. In the recently published book of treasury work plans, Kahlon named inequality as the most important target. In reality, though, he has done, or plans to do, very little.

Angering contractors

Kahlon is not fighting to impose an inheritance tax – although he promised this very tax to his voters. On the one hand, he failed to adopt a long series of other possible reforms for dealing with inequality; on the other, he didn’t fight decisions made by prime minister, economy minister and communications minister Netanyahu, which increase the power of the tycoons and monopolies, and are leading Israel along the short path to becoming an oligarchy like the countries ruled by Vladimir Putin and Recep Tayyip Erdogan, or Italy, where Netanyahu’s friend Silvio Berlusconi reigned in the past.

A war against the tycoons? Breaking monopolies? A fight against inequality? As of today, we’re getting exactly the opposite – and it makes no difference whether that’s a result of active decisions or an unwillingness to become involved in conflicts and turning a blind eye.

Even the battle against the bank monopoly, perhaps his most strident call to arms in the election campaign, is being fought feebly by Kahlon.

Although he formed the Strum committee and gave it a mandate to encourage competition in the industry, we don’t see him fighting for the full implementation of the recommendations of the panel, which are lukewarm in any case. The committee proposes separating ownership of the credit card companies from the banks, an idea that has previously come up several times. But Kahlon is not threatening to return the keys in the event that the reservations of the Bank of Israel and its demand to reject the committee’s recommendations are accepted.

Kahlon could do much more , but for now it seems that the two major banks, Hapoalim and Leumi, will continue to be an economic and political monopoly, while the service charges and interest rates on credit cards may decline somewhat.

And so Kahlon is left with only one of his election promises: to reduce housing prices and make homes affordable for the millions of Israelis who are unable to buy a home and, if they do, become enslaved to decades of mortgage payments.

That’s no coincidence. Housing is what turned Kahlon’s Kulanu into the party that was the deciding factor in the Knesset and placed him in the finance minister’s seat. On Election Day last year, in a south Tel Aviv kiosk, I heard the following comment: “My father asked me if I’ve already gone to vote for Bibi [Netanyahu]. I said to him, ‘Why should I vote for Bibi? You have a house – I don’t.’”

Kahlon himself identifies his electorate as Likud voters disappointed by the party’s socioeconomic policy and are demanding reforms – mainly in housing.

And since entering the treasury, Kahlon seems to have been preoccupied with only one thing: housing. He has assumed all the government powers over the sector, none of which had belonged to the Finance Ministry. And he has been firing in all directions: from efforts to increase supply, to a free hand with the public coffers and distributing government monetary grants, to increasing taxes on those who purchase apartments as an investment. In the Knesset corridors, some have dubbed Kahlon the “housing minister” – a barb meaning that Kahlon is neglecting the rest of the economy, which sliding into recession.

And what has happened since Kahlon started dealing with housing? Prices have only continued to rise. In the latest Bank of Israel monthly interest report, the central bank wrote the following in the final, most important paragraph: In the past months, housing prices have accelerated and are up by 8%. Demand for mortgages remains high. High levels of activity in the construction industry are expected to continue. In other words, the prices are continuing to rise for now, but perhaps the increase in supply will be reflected at some point in the prices.

Who’s the real Kahlon?

Until now, it looked as though even Kahlon thinks the situation in the housing market is not great but that prices will decline one of these days, as he promised his electorate. When? By how much?

When I addressed precisely this question to Kahlon’s professional adviser, Housing Cabinet chair Avigdor Yitzhaki, he replied that it would happen soon. He promised that if the coalition remains stable and land for 130,000 homes is sold by the end of 2017, and still the prices don’t decline by 15%, he will quit. So is the target a decline of 15% within six months? That could be quite a good start.

But suddenly it looks as though Kahlon is getting cold feet and is beginning to retreat from the optimism, as cautious as it may be, that has characterized him and his professional advisers regarding the housing market.

Last week, when asked by Army Radio journalist Amit Segal if it’s true that the politicians don’t want housing prices to decline by 30%-50% but only by 5%, because otherwise the Israeli economy would collapse, Kahlon replied, “That’s true. We don’t want to create crises in any area. We want a normal economy, we want Israelis to go to the supermarket and fill a shopping cart at a reasonable price, take out insurance at a reasonable price and buy a house at a reasonable price. Nothing will go back to the situation of 10 years ago. What if someone buys a home for 1 million shekels (about $256,000) and then, God forbid, there’s an economic crisis?”

That’s a very problematic answer. How does it help someone who voted for Kahlon so he could lower housing prices? With price up about 8% since he was elected, a decline of 5% would mean nothing.

Last summer, we asked who the real Kahlon is: Is he the fighter against monopolies, business concentration, tycoons and special interest groups, and in favor of ordinary citizens, as he promised? Or is he a kind of ersatz Likud, a temporary stronghold for Likud voters who don’t like Netanyahu and who will happily return to Likud the moment Netanyahu vacates his place – and this entire business of monopolies, the cost of living, equal opportunities and harm to democracy doesn’t really interest him?

Even back then, because he avoided dealing with the natural gas market, we suspected that the second answer was closer to the truth. Now, that judgment seems to be more accurate than ever.

Because if Kahlon is not plotting to return to Likud, what is he planning to promise in the next election to that same voter in the south Tel Aviv kiosk who voted for him? That he’s trying to stabilize prices at the present level because “nobody wants a crisis”? That we can get just as well from Netanyahu or any other politician.