Kahlon and the 'Fictitious Achievement Law' Are Sinking Israel's Economy

Multiple examples show how the finance minister cares more for winning points in the media than making sound policy decisions.

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

One of the basic laws of Israeli politics is the “Fictitious Achievement Law.” This law says that if you did something but didn’t publicize it, you didn’t do it. But if you publicized it and didn’t do it, then you did it!

Over the past year, this law has become the politicians’ darling. Everything they do is done to ingratiate themselves with the public, while substantive considerations are cast by the wayside – and the damage to the economy is steadily growing.

Take, for example, the issue of the cost of living. In another few days, the Finance Ministry will launch a television campaign about the heroic war Finance Minister Moshe Kahlon is waging against the cost of living. The campaign will focus on three products that are supposed to be cheaper by the eve of the Pesach holiday later this month – fish, frozen vegetables and olive oil – and tell us that the price reduction came about because a fairly small quota of imports was granted an exemption from customs duties.

The agreement in question was recently signed with the farmers, who privately say it’s illogical. They say they never dreamed of getting such generous compensation from the treasury – much higher than they expected. The compensation in question comes to 88 million shekels ($23 million); in exchange, they agreed to allow very limited imports of fish, frozen vegetables and olive oil.

“What this means,” they said, “is that if the treasury wants to continue reducing other customs duties on agricultural products, it will be compelled to compensate us to the tune of 12-14 billion shekels a year – an enormous, unreasonable sum that effectively prevents such a move. Maybe you understand the treasury?” they asked me.

Yes, I replied, I understand. The “Fictitious Achievement Law” is what determined this decision, not economic considerations. What’s important to Kahlon and the treasury is to present the general public with some kind of plan and score achievements in the media. Even the treasury understands that we won’t actually see any reduction in prices, but it’s more important to create an image of Kahlon as someone who fearlessly battles the cost of living.

Every junior economist knows that when you allow duty-free imports only in small quantities, the only people who benefit from it are the importers, who will reap high profits by not having to pay the duties. Market prices won’t go down, because the equilibrium point won’t change. All this is explained in textbooks on price theory.

The second example of the Fictitious Achievement Law is the cap put on bankers’ salaries. Kahlon came to the Knesset Economic Affairs Committee with a reasonable proposal – not to recognize salaries that exceed 3.5 million shekels a year for tax purposes. He left the committee with a law that effectively caps salaries at 2.5 million shekels. The change was inserted without any staff work by the treasury, without any study or economic analysis. And the damage to the economy will be enormous.

This is populist legislation that doesn’t exist in any other Western country, not in Sweden and not in the United States. This legislation has thrown the banking and insurance industries into chaos, since key executives are now threatening to quit. Even the Bank of Israel opposed the law, but Kahlon wanted a fictitious achievement to satisfy public opinion. He was less interested in the damage to the economy.

A third example relates to raising the retirement age for women. This is something that should have been done long ago. After all, it’s illogical that women can retire five years earlier than men can, even though they live until age 84, whereas men die at age 80 – on average, of course.

So now, Kahlon has set up yet another committee to discuss the issue. But people on the committee say the decision won’t be made on a substantive economic basis, but rather “by consensus” – or in other words, based on the pressure exerted by the women’s lobby in the Knesset. What matters is that Kahlon will be able to present the public with an achievement. A fictitious achievement.

That’s how it is when there’s no leadership, when politicians are afraid to make tough decisions. That’s the situation when the leader follows the flock, and the only thing that interests him is the Fictitious Achievement Law.