The truth is, I’m not that excited about the battle developing between Yair Lapid and Karnit Flug. There have been many such battles in the past between a finance minister and bank governor, and they are not without their benefits. They take the argument out into the sunlight, enabling the public to influence economic policy.
This is part of the healthy democratic process of building a budget and setting the tax burden. It’s good to hear opposing opinions in public, which is the exact opposite of making deals behind closed doors.
This time, though, the Lapid-Flug battle has taken an interesting twist. Flug, who has recently come under fire for being uncharismatic and having no influence, decided to change her image. She lowered the Bank of Israel’s base lending rate to 0.25 percent (in itself, a move in the right direction) and immediately embarked on a media tour, all the while leaking (through cronies) that what she had done was a supreme act of leadership. It was “courageously taken,” the work of a “responsible adult.” “We have a bank governor in Jerusalem,” the headlines roared.
The truth, of course, is completely different. There was no leadership and no courage involved in what she did. Lowering interest rates is the easiest thing to do. Everyone loves you and supports you – the manufacturers, exporters, mortgage payers, overdraft account holders, and all the business people and others who enjoy paying less interest.
It’s like the “courageous” step Lapid took when he went south and decided to hand over another 50 million shekels ($14 million) to the local authorities, in addition to the dozens of millions more he had already given out.
Leadership isn’t lowering interest rates and distributing millions. Leadership is exactly the opposite. It’s going against the flow; doing the difficult, unpopular things; taking criticism from every direction but knowing that it’s the right thing to do – even if the public doesn’t understand it in the short term.
For example, raising interest rates to fight inflation is a courageous leadership act. Remember what Jacob Frenkel, the governor of the Bank of Israel from 1991-2000, went through when he raised interest rates to reduce inflation? The manufacturers and public almost executed him.
The same goes for the finance minister. Leadership and courage is facing the public and saying, “I’m not increasing the budget beyond our expenditure. I’m not enlarging the budget deficit beyond 3 percent, and if the prime minister wants to give more to the army, I’ll cut public-sector wages. I’ll streamline the cabinet ministries, carry out major reforms like revoking the VAT exemption on fruit and vegetables, and raise the retirement age for women – thus protecting the economy and stability.”
That’s leadership, Lapid. That’s what the public is looking for.
Lapid and Flug are both wrong. Flug is wrong by pushing to increase government expenses and raise taxes. That’s what she has always wanted, regardless of the economic situation. She was born in the public sector and knows only one thing – to increase, expand and waste. Look at what happened to wages and pensions at the Bank of Israel, and the grandiose plans for renovating the bank structure. It was irresponsible wastefulness.
Flug will never understand that raising taxes is a deathly poison to growth and employment. Look at the current slowdown, which resulted from the series of tax rises from 2011 to today.
Lapid is right in this regard. But Lapid is wrong when he increases expenditure and raises the deficit. This is dangerous. Deficit is the most unjust tax there is. It falls on the weak, who pay it in dismissals and unemployment. Deficit is like a hidden cancer that finally kills you. For proof, see Greece and Spain in 2010.
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