Israel Set to Pass a Disappointing Budget

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Finance Minister Moshe Kahlon, May 18, 2015.Credit: Gil Cohen-Magen

Those who dream about the government falling in the near future had better return the bottles of champagne to the refrigerator. In two days from now, the 2015-2016 budget will pass in the Knesset, and the present government will remain in place for at least another year. That doesn’t rule out criticism of the budget. It’s quite disappointing. The inherent deficit is too high, the debt is too dangerous, reforms are too few and growth is too low.

But, as opposed to his predecessor MK Yair Lapid (Yesh Atid), Finance Minister Moshe Kahlon (Kulanu) at least put up a fight and tried to pass several important reforms; he even had occasional successes. He supported the staff of the Finance Ministry budget division, while his predecessor insulted them in public and fled from the slightest confrontation in the Knesset. Still, Kahlon is also responsible for several embarrassing failures.

The agricultural lobby, for example, played with him. Right at the start of the budget process, the farmers managed to remove fishing industry reform from the agenda, thus stymieing a lowering of prices. Afterwards, the lobby torpedoed reform in the goat and sheep milk industry, which will leave the prices of cheeses and yogurt among the world’s highest. Later still, reform of the poultry industry was overturned, leaving the cartel once again free to charge sky-high prices. That’s not how you lower the cost of living.

On the other hand, the “cornflakes reform” — which will lower the prices of dried food products such as pasta, rice, coffee, cookies, tea, ketchup, cola and cornflakes — did pass, which is an important achievement.

The defense establishment also defeated Kahlon this week. In the budget that will pass two days from now, the sum allocated to defense for 2016 will total $56 billion, but that figure is only temporary. In a few months from now, the treasury will ask the Knesset Finance Committee to add another three to five billion shekels to the defense budget, although the army will not fully implement the recommendations of the Locker Committee — not in operational streamlining, not in manpower changes, not in cutbacks in the rehabilitation division and not by canceling the “bridging pension” of standing army members. It’s a shame that someone with 10 Knesset seats gave in to the defense lobby so easily.

And that’s precisely our budgetary ailment. On the one hand, the defense budget is increased indiscriminately, followed by an increase in civilian expenditures. Later, Prime Minister Benjamin Netanyahu will surrender to the Haredim and distribute to them eight billion shekels in terms of the coalition agreement. Taxes must be raised in order to pay for all that, but taxes aren't popular. The solution: increasing the deficit to 2.9 percent — which is a dangerous move.

At a time of crisis, such as a worsening of the knifing attacks, income will decline, the deficit will spike, Israel’s credit rating will be lowered, interest will rise, investors will flee and there will be no escaping a harsh program of cutbacks and increased taxes, which will exacerbate the recession even further — at the most inopportune time. It happened in Greece. It’s liable to happen to us too.

It’s also disappointing to discover that during Netanyahu’s tenure, of all times, “the fat man” — in other words, the public sector — is becoming increasingly fatter, while “the thin man” — the private sector — staggers under the burden of taxes, property taxes, bureaucracy and regulation.

It’s also disappointing that Kahlon did not even try to deal with some of the principal issues, such as the astronomical customs fees on fresh food produce, raising the retirement age for women, reinstating the Wisconsin Plan, preventing the cancellation of core subjects in the ultra-Orthodox schools and the absence of manpower administration in the public sector.

Kahlon devoted most of his time to the housing crisis, but meanwhile former economics minister Arye Dery obtained zero value added tax on public transportation — which we will regret for a long time to come. It’s no big deal to brag in the media about granting an additional allowance to pensioners who receive income supplements, or about increasing the salary of soldiers doing compulsory service. It’s easy. It’s popular. But it’s more important to explain where the income for closing the deficit will come from.

It’s a disappointing budget. We expected much more.

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