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Netanyahu, Learn From Sri Lanka’s Economic Chaos

Nehemia Shtrasler
Nehemia Shtrasler
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Former Prime Minister Benjamin Netanyahu, earlier this year.
Former Prime Minister Benjamin Netanyahu, earlier this year.Credit: Eliyahu Hershkovitz
Nehemia Shtrasler
Nehemia Shtrasler

Is the price of electricity going up? Not in Benjamin Netanyahu’s world. He is promising he will bring down the price of electricity the moment he returns to power, and he will go on to bring down the prices of food, gasoline and housing as well. Just give Santa Claus the keys and everything here will become a paradise.

His former economic adviser, Prof. Avi Simhon (who was more of a political adviser than an economic one, and is now running for Knesset on the Likud slate), also knows that the public loves a person who hands out gifts. Therefore, not only is he in favor of reducing the prices of electricity and gasoline, he is also in favor of lowering taxes and increasing government expenditures “because there is a surplus in the budget.” Birds of a feather flock together.

First of all, to put things in order, the surplus in the budget is a result of the policy of former Prime Minister Naftali Bennett and Finance Minister Avigdor Lieberman, who stopped the unpaid leave and didn’t recklessly hand out coronavirus money to the business sector. The result was that people started working again, economic growth increased, unemployment went down, tax revenues soared and thus a surplus was created.

As for the price of electricity, anyone who has studied economics and understands how it works knows that it is not desirable to intervene in market prices, and therefore it is not worthwhile subsidizing electricity. That would distort the allocation of resources in the economy. The price is the most important sign and there must be no tampering with it. If the price of coal goes up, the price of electricity must also go up. As a result of that, people and businesses will save electricity and the use of coal will decrease. However, if we subsidize electricity, the result will be waste and excess use of coal, which is also the most polluting energy source there is.

This market approach is also correct with respect to the price of gasoline. That too must be a function of the international price of oil. It is also necessary to know that the excise imposed on it is not arbitrary, but rather represents the negative external influences on vehicle use. Therefore, there is no scope for lowering the taxes on gasoline. After all, we don’t want to see more cars on the roads and more traffic jams.

And now for the budget surplus. It isn’t a permanent surplus, but one that was created in the wake of the surprising transition to rapid growth, and it is not at all certain that this growth will continue in the second half of this year. The interest rate is rising, the crisis in the stock market is having its effect, high-tech is downshifting and the whole world is heading into a slowdown. When there is a temporary surplus, taxes must not be reduced and expenditures must not be increased. Responsible leadership will use the surplus to reduce the debt, and thereby better prepare us for the next crisis.

And if this isn’t persuasive enough, let’s examine what happens when populist and irresponsible politicians come to power. This happened recently in Sri Lanka when the government wanted to please the public and significantly increased the public sector and welfare programs. In 2019 it also cut taxes sharply and took out huge loans to fund the tremendous deficit that was created in the budget. And then came the coronavirus. Tourism came to a halt, revenues dropped and on May 18 Sri Lanka declared bankruptcy as a result of the total emptying of its foreign currency reserves.

Living in Sri Lanka now is a punishment. Food prices have gone up by 80 percent in the past year and there is a shortage of basic commodities. Poverty is spreading and one third of the country’s inhabitants are in dire need of food. Industry has come to a standstill due to the shortage of raw materials and the hospitals are performing only emergency surgeries. People are waiting in line for a week to buy gasoline, and there isn’t any. Last weekend, thousands of demonstrators broke into the president’s residence and set fire to the prime minister’s residence. Both men resigned but the severe crisis is far from over.

That is to say: We mustn’t be complacent. Stability is not a sure thing. Even our economy could collapse if irresponsible people who make empty, populist promises come to power.

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