Analysis

Israel's Finance Minister: A Robin Hood Who Gives to the Poor, Then Takes It Back

Moshe Kahlon's generous program of benefits has one catch: There's no money to pay for it — except by raising taxes later

Israeli Finance Minister Moshe Kahlon, April 19, 2017.
Ofer Vaknin

A month ago, at the height of the crisis over the new public broadcasting corporation, Finance Minister Moshe Kahlon explained which people are really important to him or which are less so. “What do I care who will be running the corporation?” he told army radio. “They’re my brothers-in-law?”

We were reminded of that remark last week when Kahlon extracted his revenge on Benjamin Netanyahu for the way the prime minister had treated him in the broadcasting affair. That revenge took the form Kahlon’s “Family Net” economic program of tax cuts, afterschool program subsidies and other goodies, which he unveiled to the public without informing his boss in advance.

The catch is that Family Net is not really an economic plan, and the public isn’t his “brother- in-law,” which it will discover when the time comes to pay for it.

A serious economic program has to include sources of funding. In the case of Family Net, which will benefit families with lots of young children, the annual cost will reach something like 5 billion shekels ($1.4 billion). Where will that money come from?

Kahlon says half will come from “budget reserves,” but that’s an accounting fiction, in which officials take part of the state budget and dub it “reserves” as needed. But eventually you have to replace the money. As it stands now, Kahlon is simply writing a 5 billion shekel check without cover.

Kahlon could have funded Family Net by raising taxes on higher incomes. He could have cut pensions for career soldiers who aren’t in combat units and reduced the defense budget. Or he could have attacked inflated public sector salaries or cracked down on monopolies as he promised he would during the election.

But Kahlon hasn’t done any of this. He didn’t take money from any powerful interest group. So who will pay? The ordinary Israelis who don’t have anyone to protect their interests.

How is he doing this? When it becomes apparent that the budget has run dry, the finance minister will raise the value-added tax. If not VAT, he’ll find another tax to raise or introduce or he will cut public services.

If Kahlon had put a serious economic program on the table, for example something that would make the economy more efficient, increase labor productivity, improve the allocation of resources or deal with cartels, the economy would grow faster and the public would benefit. Then there would be no reason to dip into “reserves.”

In the weekend newspaper, Kahlon was a superstar, a real rock star. He avenged Bibi’s insults, threw money at young families and forced the prime minister into a corner with a plan too popular to oppose. Even the Bank of Israel supported his plan, an unusual stance for the central bank, which doesn’t like the government spending money for which there’s no funding.

The Bank of Israel statement included such purring remarks as, “The measures announced by the finance minister are appropriate, and most of them fit well into the government’s strategy to encourage employment, reduce poverty among working people, and assist young working families.”

Only later in the announcement does the central bank ask where’s the beef. “The plan utilizes a significant portion of the reserve for special needs set aside in the 2018 budget” and gently warns “Assuming that all the measures are permanent (which is desirable, as noted), additional funding sources for the plan will need to be found, to ensure the ability to meet the fiscal targets for 2019–20.” In other words, the taxpayers will have to provide it.

When you look back on Kahlon’s performance since he took office, you see that he has written out checks to young couples worth a few hundred shekels a month under his Family Net plan while the rising price of homes has saddled them with costs of hundreds of thousands of shekels.

Isn’t Kahlon the one who inherited the housing bubble from his predecessors? Has he done everything possible? Hasn’t he done more than any other finance minister to address the problem?

The answer is, “What difference does that make?” Kahlon ran for office on the basis of promises to lower the price of housing. He got a free hand from Netanyahu to act and in spite of that prices are still rising after two years.

If the defense minister and chief of staff go out to war and lose, they can’t blame it on their predecessors’ failures and expect to stay at their jobs. Ministers aren’t judged by their intentions or efforts but by their results.

Kahlon could have taken other steps to cool the market, but he chose to act cautiously.

Has Kahlon become a socialist? Has Avi Gabbay, who quits Kahlon’s Kulanu Party for Zionist Union, become a communist?

In the last few months, Kahlon has been distributing benefits to the poor, the young, people in the periphery and the disabled, to hell with the budget. He acts like a French left-winger. And he’s not the only one.

Gabbay, who was once the CEO of Bezeq, announced on Thursday that he was supporting Shelly Yacimovich’s bid for head of the Histadrut labor federation. That’s quite a turnaround, as Gabbay in his Bezeq incarnation used to call her a communist. They also called TheMarker a communist media outlet.

The latest moves by Kahlon and Gabbay deserve some explaining and there are two options.

One is that they have genuinely altered their socio-economic worldview and become “socialists” as someone in the business sector would understand the term. The second is they are political opportunists and what interests them is getting and keeping power.

They will do what and say whatever is needed, based on opinion polls, the timing of elections, the public’s mood and, above all, their personal interests. So which is the correct answer? I’d go with the second one.