Israel's Budgetary Situation Is So Hopeless, One May Laugh in Utter Despair

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Former Finance Minister Yair Lapid and Prime Minister Benjamin Netanyahu.
Former Finance Minister Yair Lapid and Prime Minister Benjamin Netanyahu.Credit: Oren Nachshon

If Standard & Poor’s were a serious company, it would be lowering Israel’s credit rating right now. But it can’t be helped – this is an outfit with many failures to its name, which has given AAA ratings to huge corporations and banks only moments before they went bankrupt, and excellent ratings to countries that have huge debts – moments before they collapsed.

After all, our situation is crystal clear. The 2015 budget is out of control, the numbers don’t add up, the expenditure goal has been overshot, the deficit is bigger than what was declared, growth is dwindling, the debt-to-gross-domestic-product ratio is worsening, interest payments are increasing and the cost of living is skyrocketing. There is only one area in which everything is splendid: The defense budget is swelling and getting fat out of all proportion and with no limits.

In view of all that, some people are professing astonishment at the ease with which the budget has passed in the government. But they shouldn’t. Like the Jew in the story who suffered so many blows and punishments from the Polish landowner that he stopped wailing and started laughing – in utter despair – our budgetary situation is one of total hopelessness. All the government ministers know that the problems haven’t been dealt with but rather postponed to 2016, and since the expected hole in 2016 is deep and scary and Finance Minister Yair Lapid and Prime Minister Benjamin Netanyahu don’t intend to be the “bad guys” who deal with the problem, the outcome will be the fall of the government and early elections at the beginning of 2016, so it will be the new government that carries out all the things that need to be done: real and painful cuts.

If you look at the Budget Book, you will find on page 94 hints planted by the Finance Ministry’s Budget Division. For the first time in the national budget’s history there is a huge red warning sign that shouts: “The king isn’t wearing any clothes!” On that same page it is explained that in order to conform to the budget and deficit limits in 2016, the government will have to cut NIS 5.6 billion. If we add to this the “financial arrangement” received by the Defense Ministry (NIS 4.3 billion), which is not a one-time thing but rather a permanent expenditure for its strengthening, then the necessary cut will amount to NIS 10 billion.

To this must be added about another NIS 3 billion (for expenditures that will develop in the course of 2015), which will increase the necessary cut to NIS 13 billion – and there is no way “Mr. Society” Lapid and “Mr. Security” Netanyahu are going to pass that. They are not going to change their spots. They are not going to all of a sudden start behaving responsibly.

Therefore we can laugh, like the Jew in the story who despaired, upon reading Finance Ministry director general Yael Andorn’s talk about “fiscal responsibility.” At one time that was true, Ms. Andorn. Not any more. The director general of the Finance Ministry is talking about reducing the debt-to-GDP ratio but that too is a thing of the past. Next year this ratio will get worse and interest payments will rise.

Andorn mentions the reforms “Israel needs” but not the important reforms that aren’t to be found in the budget: the retirement age for women, the public sector pension, the bridging pension in the army, value-added tax on fruits and vegetables, management flexibility in the public sector – and this is just a partial list.

Andorn is talking about a government that has taken “a series of steps to deal with the cost of living in the area of foods.” To what government is she referring? The steps that have been taken are in fact only marginal. To lower the cost of living it is necessary first of all to lower the heavy customs duties on imports of meat, poultry, fish, eggs, dairy products, fruits and vegetables, canned goods and more – and this isn’t even a twinkle in anyone’s eye. Andorn talks about a government that has decided upon a “declining slope in the deficit,” when the decision has been just the opposite: an increase in the deficit target for the relevant years.

But fear not: When this clear truth becomes common knowledge, even the Standard & Poor economists will wake up, understand the magnitude of the mess and lower Israel’s credit rating. The problem is that this will happen too late. As usual.

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