Opinion

Israel Gets an ‘F’ in Finance

Moshe Kahlon was a terrible finance minister who left us a dangerous deficit and an economy whose growth is slowing. But Netanyahu was equally to blame

Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon, November 2018.
\ RONEN ZVULUN/ REUTERS

Today it’s clear that Moshe Kahlon is a failure. He was a terrible finance minister who left us a large and dangerous deficit and an economy whose growth is slowing. That’s why he’s going home.

But he’s not alone. Prime Minister Benjamin Netanyahu is equally responsible for the failure. The large 2019 deficit – 52 billion shekels (nearly $15 billion) – is their handiwork. This deficit wasn’t created by a recession or a global crisis, but during a period of reasonable growth and full employment. It’s an intrinsic deficit, a huge pit that will be hard to fill.

Kahlon and Netanyahu acted like a family that chronically lives beyond its means and then takes loans to finish the month. They raised expenditures irresponsibly, well beyond the income from taxes, and took huge loans to finance the deficit they created. One day the bank will wake up and force that family to cut expenses, and similarly the government will also be forced to cut back. The harsh data the treasury presented on Sunday proves this.

During the first three years of his tenure, Kahlon was incredibly lucky. He increased expenditures freely and gave “gifts” to everyone, with Netanyahu’s backing, but the deficit did not exceed the government target. Each time they found one-off sources of funds to stabilize the kitty. In 2018 everything started to unravel, but Kahlon denied there was any problem. He said the people in his ministry’s Budgets Department were exaggerating. His people in the treasury even managed to rearrange the numbers to end 2018 without any deviations. After all, he was running in April 2019 as head of Kulanu and wanted to show achievements.

But then came 2019 and the truth rose to the top. All Kahlon’s sins became obvious and proved to all the degree to which he was a bad, irresponsible finance minister. The deficit skyrocketed to 3.7 percent of GDP – 52 billion shekels – a deviation of 12 billion shekels from the original plan.

Moreover, the deficit is expected to grow further this year and in the coming year, reaching 4 percent of GDP, which is a true disaster. Netanyahu responded grudgingly that “it won’t happen,” becoming a denier of reality, like his friend Kahlon, a known deficit-denier.

In any case, don’t envy the next finance minister. He will have to fix what Kahlon and Netanyahu messed up. The first thing he’ll have to do is cancel the Buyer’s Price housing plan, an expensive project that failed. It didn’t succeed in bringing down home prices, which continue to rise. The next finance minister will also have to sharply cut the budgets that are transferred to the ultra-Orthodox – for yeshivas, kollels, payments to married yeshiva students, ritual baths and afternoon programs.

It’s inconceivable that people who don’t work and don’t serve in the army get more than those who do. There must also be a cut in the huge budgets transferred to the settlements under all kinds of budgetary clauses. The money floods those territories, for educational systems that get more, for bypass roads and for expensive IDF security.

The army’s budget will also have to be cut for such items as bridging pensions, and there will be no alternative but to survey all the government ministries with an eye toward cutting redundant branches and even ministries that were created simply to give politicians something to do.

On the revenue side, instead of raising taxes, exemptions will have to be canceled, like the VAT exemption on fruits and vegetables and the exemption in Eilat. The tax benefits on professional enrichment funds and pensions will have to be reduced, since it’s generally higher-salaried people who benefit, and it’s also time to cancel the tax benefits granted to exporters. After all, we have no balance of payments problem.

Only one thing must not be done: Infrastructure must not be touched. Our infrastructure is in bad shape. We are lagging not only in our roads, trains and public transportation, but also in communications and sewage. Our level of infrastructure is lower than that of Europe, but unfortunately we invest less than they do in Europe, so the infrastructure gap is increasing. The problem is that infrastructure investment is the easiest thing to cut. Roads don’t protest and trains don’t shout.