Israel’s New Finance Minister Needs to Be Mr. Reform

He can't dole out the money the way Yair Lapid did. He needs to increase competition in banking, the power sector and the ports — and that's just a start.

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Kulanu leader Moshe Kahlon (R) with the Kulanu candidate Yoav Galant, March 16, 2015.
Kulanu leader Moshe Kahlon (R) with the Kulanu candidate Yoav Galant, March 16, 2015. Credit: Moti Milrod

After two years of fiascoes and insults, a new wind of hope is blowing in the Finance Ministry’s Budget Department. Economists there hope Moshe Kahlon will do the opposite of his predecessor, Yair Lapid. They pray the new minister will be with them and not against them — and there’s a chance this will happen.

Lapid was the first finance minister who fought with his own officials. Arrogant and insecure, he showed contempt for these experts in public. Instead of fighting the strong trade unions and large monopolies, he berated the department’s economists in a bid to appear strong. It was easy. It was popular. They couldn’t answer back.

He accused the 60 economists, who are seen as the elite commandos of government service, of trying to take over the decision-making process. He said they saw themselves as keepers of petty cash, while he the visionary knew he had to dish out as much money as possible.

Fortunately Kahlon thinks otherwise. He has always respected the department’s staff. He understands that these economists have the good of the economy in mind. He appreciates their knowledge and doesn’t intend to fight them, certainly not to deride them in public.

When asked about his reform of the cellphone industry when he was communications minister, Kahlon took pains to mention that the move had been planned by the Budget Department people and that he fought for it with them. Now too, during the coalition talks, Kahlon has asked the department to look into agreements being drafted with the ultra-Orthodox community — he doesn’t want spending to balloon.

He knows that the department people detest the idea of reducing VAT on basic products to zero (a matter of 1 billion shekels — $253 million). They don’t want to return child allowances to 2012 levels (2.5 billion shekels) and give another 500 million shekels to yeshivas and ultra-Orthodox schools.

He realizes that these steps would lead to a poverty trap. Increasing child allowances and school benefits for poor families with many children would turn around the welcome trend of Arabs and ultra-Orthodox Jews joining the labor market.

Kahlon will enter the Finance Ministry as Mr. Reform. He can only keep this title if he cooperates with the Budget Department and carries out reforms that Lapid was afraid to implement because he didn’t want to fight the army, the settlers, the farmers, the Histadrut labor federation and the big unions.

To prove he is serious, Kahlon must lower the deficit target and object to increasing the number of ministers beyond 18. If there’s a need for streamlining and cutbacks, he’ll have to do it without fear.

Kahlon has already spoken out about the need to increase competition in banking. But we have to increase competition in other industries such as electricity, the ports, the Egged and Dan bus cooperatives, Israel Railways, sheep and goat cheese, eggs and fish. Meanwhile, the high taxes on meat, poultry, fish, eggs, dairy products, fruit and vegetables must be revoked, reducing the cost of living.

To lower housing prices, the Israel Land Authority must be closed and the land sold to the public. Another series of reforms pertains to the economy’s structure. We must make the public sector flexible, raise the retirement age for women, increase public-sector workers’ pension deduction and revoke the military’s bridging pension. Also, the Wisconsin welfare-to-work plan must be reinstated.

Kahlon must put all this into the coalition agreement and implement it in his first year in office. A victory in this battle will make him a success story.

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