Steinitz: Lapid Distorted Economic Picture for PR Purposes

Says his successor at treasury tossed around exaggerated deficit projection that damaged country.

Strategic Affairs Minister Yuval Steinitz, who prior to the January Knesset election was finance minister, says there is no truth to the theory that Prime Minister Benjamin Netanyahu gave Yesh Atid party leader Yair Lapid the post of finance minister to stymie Lapid’s political career.

"Netanyahu, like every prime minister, wants his government to be successful," Steinitz told TheMarker in a wide-ranging interview. "So why did he appoint Lapid? Because there was a need for economic restraint, and Lapid, backed by [Yesh Atid's] 19 Knesset seats, would have killed any finance minister who would have decided [to impose] economic restraint, unless his name was Yair Lapid."

Steinitz said he has spoken on occasion with Lapid about economic issues, but most of their discussions deal with foreign, defense, intelligence and strategic affairs. However, they did have extensive conversations about economic matters when the Finance Ministry reins were being handed over to Lapid, he added.

So what is Steinitz's opinion of Lapid's economic policies? Lapid, he said, deliberately painted a dark view of Israel's economic situation on assuming office. "That's an approach that is unacceptable to me. True, the deficit was too big," he said, adding that it was smaller than the 3.8% deficit that Steinitz said he inherited in 2007 when he took office. (Actually, however, the state deficit at that point in 2007 was close to zero).

"But we have to tell the truth," Steinitz said. "Lapid enjoyed the fruits of the success of the previous government. He is one of the only finance ministers in the West who doesn't have to deal with the problem of mass unemployment and huge youth unemployment. He received a country that is in a growth mode with huge growth in economic investment. He received a better debt-to-gross-national-product ratio and a higher [sovereign] credit rating, which during my time was raised to A+." Steinitz said Lapid was invited to the OECD as a "respected member" rather than a representative of a candidate for membership "after I managed in the course of a very intensive process to have us admitted into the organization."

Steinitz: ‘A little collegiality’

Lapid will also benefit from high taxation of Israel's offshore natural gas resources, the former finance minister said, after Steinitz lobbied the Sheshinski committee, which made recommendations on taxation of Israel's oil and gas reserves. "One could have expected a little collegiality," added Steinitz, who is a member of Netanyahu's Likud party.

"During the course of 2012, when it became clear that the deficit was too high, I initiated a plan to bring it down," Steinitz said. "Lapid bitterly criticized it, saying that no deficit justified budgetary restraint, increased taxes and harm to the middle class. Now when it turns out that the 2012 deficit was lower than what was originally thought [in relation to GDP, following a change in how GDP is calculated] and data between August 2012 and August 2013 show a clear trend of reduction in the deficit, Lapid, who at the time criticized the plan to lower the deficit, suddenly attributes the positive data to himself.

"One would have expected a certain measure of integrity, of camaraderie,” said Steinitz. “That's not an impossible thing in politics. I recently saw another minister [referring to Education Minister Shay Piron, also with Yesh Atid] who saw positive data on the success rates on the matriculation exams, and he wasn't embarrassed about attributing them to the predecessor in his position and the previous government, as an honorable person should. Such a way of doing things - starting a new position, painting everything black and speaking of catastrophe to defend yourself in the face of public opinion, is not acceptable to me.”

He went on to say: “This campaign has caused damage to the State of Israel. At the height of the campaign, the finance minister announced that the projected 2013 budget deficit would reach 4.9% [of GDP] without having a statistical basis for his comment. He wanted to underline how tough the situation was. The immediate effect was that within 24 hours, the S&P [Standard & Poor's] rating agency announced that it was lowering Israel's local currency credit rating from A+ to A. After a few months, it became clear that the expected deficit this year would be much smaller - 3.3%. The figure tossed into the air for media purposes and without foundation caused the country harm - not strategic damage that cannot be rectified in the future, but damage still.

"Immediately after he raised the tax on alcohol by a substantial amount, he became frightened over the public criticism and announced that the high tax was forced upon him due to the agreement [Israel signed] to join the OECD,” Steinitz continued. “That announcement outraged me because I am proud of [Israel's] admission to the organization, but more importantly, because the statements are simply not true. Failure to speak the truth borders on misleading the public. I would have been happy to see fairer and more collegial conduct."

Finance Minister Yair Lapid's office declined to respond to Steinitz's remarks.

Oren Nahshon