Popularity Is Not Everything, Mr. Kahlon

The next finance minister should be less worried about people liking him and more concerned by ridiculous demands to up government spending.

Emil Salman

The company’s management meeting was stormy. The finance director presented a report projecting a 10-million shekel ($2.5-million) jump in revenues above and beyond the earlier forecast, prompting everyone in the room to burst out laughing. For his part, the marketing director argued that the promotional budget had to be increased. The production manager then chimed in, asking: “Why marketing, of all things? First we need to replace antiquated equipment.” Then the human resources director got up and pleaded: “We have to hire another 50 employees right away. We have a serious personnel shortage.”

The company’s CEO looked on in amazement. “Have you all gone crazy?” he asked. “Based on the previous projection, we were expected to finish the year with a catastrophic 37-million-shekel loss, and now, due to increased sales, we will end the year with a 27-million-shekel loss – which is still too much. So why are you talking about increasing expenses? We need to do just the opposite and cut costs.”

This is precisely the situation with Israel’s government budget. In this case, the planned deficit for this year was 37 billion shekels, which is 3.4 percent of the country’s gross domestic product, due to the wasteful practices carried out in recent years by former Finance Minister Yair Lapid. That is a deficit of catastrophic proportions. Then Knesset elections were moved up to March.

As a result, some of the planned finance-related initiatives – for example, an exemption from value added tax on new homes bought by qualifying buyers – were never carried out. Plus, there has also been an increase in the tax revenues the government has taken in, making it possible to end this year with an estimated 27-billion-shekel deficit, 2.5 percent of GDP, which is also dangerously large. So why increase government spending further? And what is all this talk about surplus revenues?

None of this apparently makes an impression on our politicians, however. In the course of negotiations on the formation of a new coalition headed by Prime Minister Benjamin Netanyahu, the politicians have been demanding increased spending, each in their own bailiwick. The ultra-Orthodox are demanding a 3-billion shekel increase in child-support payments and in support for yeshivas. The Defense Ministry is demanding 5.6 billion shekels in additional funding. The settlers want huge sums to underwrite West Bank construction, and social-welfare advocates want another several billion to raise government support for the elderly and for single-parent families, to expand the negative income tax program, to expand schemes to help people who want to rent apartments, and to add teachers' aides to kindergarten classes. And that’s just part of the list.

But Kulanu party leader Moshe Kahlon, who is slated to be the finance minister in the new government, remains silent – unlike the CEO in the story at the execs' meeting. Instead of calling the spending demands crazy, Kahlon is holding his tongue. Instead of insisting that the cabinet not be enlarged beyond 18 ministers, because it would be a waste of money that would run counter to the goal of social justice – he ignores the problem. Instead of declaring that he will not allow the annual deficit to exceed the current mandated level of 2.5 percent this year and just 2.0 percent in 2016, he is indicating to everyone that a large deficit is not a problem.

Instead of explaining that every demand for a budget increase requires a comparable cut in spending on social-welfare services, he thinks instead about his measure of popularity.

At one time, while Yuval Steinitz was finance minister from 2009 to 2013, Kahlon, also a Likud cabinet minister at the time, approached Steinitz remarking that the job of finance minister is the most difficult position there is, one in which you cannot be popular with the public. He was right: Treasury ministers can never be well liked while they are in office. But once they leave, after everyone understands that they have headed off economic crises, fostered growth, created jobs and narrowed economic gaps – they can reap the fruits of what they have sowed with enhanced political popularity.

Kahlon has promised reforms in the housing and banking sectors but there are many other fields that need a major overhaul. Customs duties on food imports need to be reduced. Flexibility needs to be introduced into the methods by which the public sector is managed. The state-owned Israel Electric Corporation needs to be broken up; the ports need to be privatized.

Moreover, pension benefits that departing career-army soldiers receive until they reach the retirement age that applies to the rest of the population must be eliminated. The retirement age for women must be raised. Employees with so-called defined benefit pensions that are funded directly by their employers must contribute more themselves. And the lamb, egg and fish industries must be deregulated.

All this demands courage and determination in standing up to strong workers committees, well-entrenched unions, the Histadrut labor federation and big business owners – without regard to how one’s public popularity is affected. Is Kahlon up to the task?