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Israel's Economic Crisis Is Just Beginning

Sami Peretz
Sami Peretz
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A food delivery cyclist wearing a mask goes past the Tel Aviv Stock Exchange, March 2020.
A food delivery cyclist wearing a mask goes past the Tel Aviv Stock Exchange, March 2020.Credit: Ofer Vaknin
Sami Peretz
Sami Peretz

The breech birth of the new government and the unusual, mine-filled coalition agreement do not augur well for its success. The agreement is a model of twists and turns, the result of a basic lack of trust between Prime Minister Benjamin Netanyahu and Benny Gantz, the alternate prime minister designate. The mines are not to be found only in the judicial field awaiting Netanyahu, but in the socioeconomic arena as well. Not because there are ideological disparities between the two blocs – there are none – but because the budgetary blanket will be particularly short due to the costs of the coronavirus crisis.

Reminder: Before the coronavirus crisis there was a need for changes in the state budget, totaling about 20 billion shekels ($5.7 billion). That was when the budget deficit was 3.8 percent of GDP. In the past two months government expenditures have leaped by tens of billions of shekels, the GDP has lost tens of billions, and as a result the anticipated deficit this year will reach about 11 to 12 percent of GDP.

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Israel’s strong response to the crisis yielded good results when it came to health, with a health care system that functioned well. But in terms of the economy the result is catastrophic. The number of unemployed has reached an all-time high (one reason being the unpaid leave system, which encouraged even employers who did not suffer to let the government pay their employees’ salaries), the government assistance promised to businesses is being delayed, and the hasty budgetary decisions have created chaos that the new government will be required to regulate and stabilize.

According to the coalition agreement, within 90 days from the swearing-in of the government the new coalition is supposed to guarantee the approval of the 2020-2021 budget. The present year is already a lost cause, but the coming year must be one of recovery and growth. In the past year the Finance Ministry prepared many plans for the state budget, but they were all tossed out because of the coronavirus.

Tape marks safe distances between people at the reopened Hatikva Market in Tel Aviv on May 12, 2020.
Tape marks safe distances between people at the reopened Hatikva Market in Tel Aviv on May 12, 2020.Credit: Tomer Appelbaum

Now they will have to be redrawn, and there is a real fear that the ministry will be unable to keep the promise that appears in the coalition agreement: “The government will spread a socioeconomic safety net under all the country’s citizens, with an emphasis on the most vulnerable populations. Plans will be created to deal with designated populations that are suffering from particularly harsh economic distress.”

This fear is based on the fact that handling the crisis requires decency, sensitivity and providing a personal example, and in the coalition agreement we have seen only the opposite, in the guise of the most inflated government in the country’s history and the arranging of a residence for Prime Minister Benjamin Netanyahu. The principle of parity on which the coming government is based involves an exchange of positions after a year and a half. That is too short a period in which to bring about changes involving battles with pressure groups. Especially in light of the large number of escape clauses that allow for disbanding the government. It is more likely that the partners will roll hot potatoes onto one another’s doorsteps.

Take Benny Gantz, for example. As defense minister he will be forced to deal with career soldiers’ pensions, in a clause called “the chief of staff’s increase” – an arbitrary increase of the IDF’s pension at a rate of up to 19 percent, which costs the state coffers 1.1 billion shekels ($314 million) annually. Gantz and Foreign Minister-Designate Gabi Ashkenazi benefit from it themselves, and have also pampered thousands of career officers with this addition.In the opinion of Deputy Attorney General Raz Nizri, there is no legal basis for payment of this addition. Will Gantz dare to cancel it out of that same concern for the “most vulnerable elements,” or is it more likely that he will become an IDF lobbyist?

Finance Minister-Designate Yisrael Katz is receiving the finance portfolio in very bad shape, with a huge deficit and astronomical demands by the healthcare and defense establishments, and with hundreds of thousands of self-employed and salaried workers having lost their livelihoods. It’s true that he will have carrots and sticks at his disposal, but he will be operating in a political ecosystem that is likely to prevent them from reaching the right places. The economic crisis is just beginning.

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