Giving Israelis What They Need, Not What They Want

The 2015 budget will be passed and will usher in a bad year for the economy, with little growth, a large deficit and higher unemployment.

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Finance Minister Yair Lapid.
Finance Minister Yair Lapid.Credit: Tomer Apelbaum

“I do not know what the people want, but I know what they need, and I shall fight for that all my life,” David Ben-Gurion, Israel’s first prime minister, famously said.

I recalled this statement when I spoke at a conference a few days ago. On the stage were a few Knesset members, who regaled the audience with their extensive activities for the public good. I spoke after them: about the dangers of Finance Minister Yair Lapid’s policy of generosity, about Israel’s large budget deficit and about the fact that next year’s state contains no reforms, without which there is no growth.

A Yesh Atid MK later countered my arguments: “It’s high time to stop being stingy with spending. We have to help the middle class, that’s what the finance minister is doing. Look at zero VAT on apartments, for example,” he said, referring to Lapid’s proposal to exempt certain first-time home buyers from the 18% value-added tax on new homes. “VAT should be canceled on food as well,” he added, to loud applause; he looked at me, victory in his eyes. It was then that I remembered Ben-Gurion’s words. But where are such leaders today?

The 2015 state budget broke many records. Instead of 2.5 percent the deficit will be 3.4 percent, a dangerous level that exceeds the 3-percent limit of the Maastricht Treaty for European Union member states. Only 2.8 percent growth is forecasted, meaning the ratio between Israel’s government debt and its gross domestic product will rise, after years of improvement. That in turn increases the risk of cuts to Israel’s credit rating, declining investment and rising unemployment. Only one thing will soar: the defense budget, to a high of 65 billion shekels (about $17.5 billion).

And the reforms? Lapid has presented the Knesset with a ridiculous Economic Arrangements Bill (hok hahesderim), supplementary legislation to the annual state budget. He naively believes he can pass such a skeletal piece of legislation, but his fellow MKs do not want to give him any victories. And in an unprecedented hazing of the freshman lawmaker they are hindering him from pushing through even his four paltry proposed reforms: to public health, the Jewish National Fund, issuing minority shares in state-owned companies and restricting the government payroll.

Lapid did not even attempt to pass two important reforms: shutting the Israel Lands Administration and selling all state lands to citizens, which would reduce home prices; and canceling import quotas on foods products, which would solve most of Israel’s high living costs. Three reforms he already approved — on imported eggs, fish and sheep’s- and goat’s-milk cheeses — were not included in the Arrangements Bill. Agriculture Minister Yair Shamir opposed them, and Lapid gave in without a fight. He was afraid to go up against the farmers.

In order to curry favor with female voters, Lapid also omitted from the bill a hike in the retirement age for women. And in order to avoid annoying the Histadrut labor federation, he backed off from giving government offices more authority in hiring and firing, and from raising employee contributions to defined-benefit, “budgetary,” pensions. He postponed proposed reforms to the regional water corporations, rather than facing the country’s mayors, and out of fear of the army he failed to cancel its bridging pensions. Terrified by the unions representing Israel Electric Corporation employees, he backed down on the proposed reform of the utility. Never has an Israeli state budget had so few reforms.

Lapid even preemptively removed from the Arrangement Bill the clauses whose only purpose was to permit MKs to score “victories” by means of their removal, while leaving in more-significant line items. A rookie mistake.

Some commentators believe the total chaos that now reigns has made early elections inevitable. I believe that despite it all, the 2015 budget will be passed. But 2015 will be a bad year for the economy, with little growth, a large deficit and higher unemployment, leading to a major blow-up late next year and new elections in January or February of 2016.

I know what the people want: no VAT on anything. But I also know that the people should have: a leader of Ben-Gurion’s stature.

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