Lapid, Ask the Trillion-shekel Question

"Where's the money?" Lapid asked during the election. Now as finance minister, it's up to you to dare all and find it.

Some years ago, a top personality at the Finance Ministry's budget department showed me how he would balance the state budget that year.

Well versed in the figures, he said he would move NIS 700 million from here to there, postpone something to next year, and apply an across-the-board cut to all government ministries.

At that point the naive voice in my head took over and I asked why he doesn't take a look at the entire state budget – around NIS 300 billion at the time – and think how he could turn it completely around.

He looked at me like I was an idiot and proceeded to explain that the budget is inflexible and is based on commitments that are not open for discussion.

The conclusion is that the annual talks on the state budget aren't about NIS 350 billion (its current size), but only about what's on the fringes: the movement of a few billion shekels at most.

Even talk about "changing priorities" means redirecting a few shekels from item A to item B. Nothing more.

Good luck with revolutionizing things in this manner. And, we can assume the budget meetings held by incoming Finance Minister Yair Lapid will be marked by the same inflexibility.

Over the last few weeks, Lapid has held a round of consultations with economists, businesspeople, close associates, and past and current senior government officials to get up to speed as quickly as possible. He doesn't have much time. He needs to learn on the go if he is to deliver the budget this summer. He could easily lose himself in the process, paying too much attention to what's designated as urgent while neglecting what's important and playing the role of a horse trader who's just trying to survive while keeping a grip on the public purse.

But to the best of my understanding, this isn't why Yair Lapid got into politics. He is now surrounded by people trying to help him, or themselves, or both, as he attempts to navigate the ins and outs of the new world. He has performed surprisingly well so far, by winning big in the election, forging a (temporary?) alliance with Naftali Bennett that gave them both more power in the coalition talks, and assuming the huge risk of taking on the Finance Ministry.

Now he's being bombarded with advice, mostly on what to do and where to cut. Let's join the fun with a few simple tips:

1. Very soon they'll be talking to you about NIS 15 billion, the amount that needs to be cut so the government can meet the annual deficit target of 3% of the gross national product. But first, you should ask about the NIS 350 billion that constitutes the year's entire budget. Or go the whole hog and ask about the NIS 1.5 trillion that constitutes the aggregate state budget for the four years of your term.

Before considering budget cuts, think about how government funds can be used to make our economy fairer, more competitive, more humane and more innovative, and how to use it to better serve the people of Israel. While you're lost in such thoughts, everyone will probably tell you: "Forget about it. The budget is rigid. One third goes to debt, another third to salaries, and another third we've already committed. This is no time for upheavals."

But you spoke about new politics, you asked "Where's the money?" and you even took on the most thankless cabinet post there is, so you've got nothing left to lose. At worst, you'll go back to the familiar rut that everyone's trying to lure you into: a contentious budget involving one-upmanship with the defense establishment, system-wide cuts, value-added tax on fruits and vegetables, and the usual easy fixes of squeezing out money by hiking VAT 1% and raising gasoline taxes. It won't be tragic if you do this, but it won't lead to any change. You'll go down in the books as a finance minister who held everything together but not as a ground-breaking finance minister.

2. You probably feel a certain lack of self-confidence in the presence of economists, finance professors, and just ordinary political functionaries or shrewd ministry types who’ve been around for ages and can tell you how things really work. It's logical for you to surround yourself with people who know the laws of Israel's political jungle, but we find this a trifle worrisome. These people might guide you so you don't turn into someone's dinner, but they won't get you too far. What they'll teach you is how to finagle the budget through backroom deals, coups and blackmail, none of which will get us anywhere.

You need people who will build you a new playing field, where you get to set the rules. Israel has enough ethical experts capable of putting the public interest before anything else. Let them be your guides.

3. Many will tell you that your most important objectives are maintaining the treasury's power and not relinquishing any authority. That's how the current system works; surrendering authority is considered a sign of weakness in Israel. But you spoke of new politics, right? So it's worth trying something new by changing the method for balancing the budget.

No need to set up new committees; it's already been done. There is a governance committee headed by the director general of the Prime Minister's Office, Harel Locker, that studied the matter but for some reason didn't go the whole nine yards. You should sit down with economists like Avi Ben Bassat and Momi Dahan, as well as former Israel Antitrust Authority director Dror Strum, who know all the problems with the current method of managing the budget.

You'll quickly grasp that the Finance Ministry is the traffic cop for every ministry's budget – not just in terms of the bottom line, but even down to the smallest line items. Every change requires approval, leaving each government ministry essentially held captive to the treasury. It's inefficient, turning the treasury into a bottleneck. It's also unnecessary, hindering service to the public and leaving cabinet ministers an out for every financial decision, since they can always blame the treasury.

4. Look after your erstwhile ally, Habayit Hayehudi chairman Naftali Bennett. Last week he came out with a grandiose declaration about working on behalf of all the "unconnected." Bennett is full of good intentions, which is truly impressive, but even though he answers to the Hebrew title "economy and trade minister," you both know that you're the real minister of the economy.

As the person heading the Industry, Trade and Labor Ministry, which Bennett has renamed, his ability to deal with powerful members of the defense establishment, banking sector, ports or the Israel Electric Corporation is negligible. He doesn't have any authority. Notwithstanding his alliance with you, he can keep talking but he won't bring about any results.

Truthfully, I don't know how much you connect with Bennett's message and how you feel about plunging in, but if you're interested then Bennett will certainly prove a loyal partner in what he calls "a government of opportunities."

5. If you do decide to take on the "connected" interest groups, you should schedule a meeting with Oded Sarig, the treasury's commissioner of capital markets, insurance and savings. Sarig is a financial whiz and a good man. Supervising Israel's capital market is actually a job for a meanie, someone whose only care is for the savers in the pension market and who will do anything and everything to ensure that the Israeli public puts its faith – and its money – in the local capital market.

Sarig is such a good guy he doesn't find it necessary to interfere in debt restructuring, and he thinks the haircuts are a trivial matter. He's an expert on finance but not on public trust. He doesn't understand that the public discourse over how savings are managed in the capital market isn't about returns but about trust and fairness. Yair Lapid, you once said the tycoons are robbing us; dealing with them is now your responsibility.

 

Bloomberg
Oren Nahshon