Growth of Israel's Debt Is Kahlon’s Failure

Israel's finance minister has raised the debt-to-GDP ratio to a dangerous level of 61.2 percent, with the numbers showing that this will only deteriorate throughout 2019 and in the years afterwards

Finance Minister Moshe Kahlon at a government meeting, Jerusalem, January 27, 2019.
Amit Shabi

The Treasury’s accountant general just released some data that escaped public notice due to the media attention on Benny Gantz’s maiden speech and its aftermath. However, this was important data, emblematic more than anything else of the colossal failure of Finance Minister Moshe Kahlon and Prime Minister Benjamin Netanyahu, who bear joint responsibility for the stewardship of Israel’s economy.

After 33 years of a consistent policy, pursued by all of Israel’s finance ministers, aimed at reducing Israel’s public debt in relation to its GDP (beginning in 1985 with the plan to stem hyper-inflation), Kahlon came on the scene and changed direction. He’s raised the debt-to-GDP ratio to a dangerous level of 61.2 percent, with the numbers showing that this will only deteriorate throughout 2019 and in the years afterward.

In this third of a century, there were some years in which the ratio did go up, but only in years when there was a global crisis, war or intifada. Kahlon’s uniqueness lies in managing to enlarge the debt during a normal year, 2018.

Kahlon is a politically-driven finance minister. His aim is to increase the number of Knesset seats held by his party, Kulanu, and his strategy is to distribute funds to everyone so they will vote for him. He gave to weak sectors, but also to the middle class and the rich. He hugely overspent the budget, which is seen now in the rise of Israel’s debt-to-GDP ratio.

Just like a family which spends more money than it makes until the bank stops giving it any more credit, so goes the state. The rise in its debt threatens its credit rating. The state will have to pay higher interest so that it has less to spend on health, education and welfare.

Such a policy is the exact opposite of the socially oriented policy touted by Kahlon. It just turned out that the deficit in the 2019 budget will be even larger than that of 2018, reaching 3.6 percent instead of the projected 2.9 percent (amounting to 50 billion shekels instead of 40 billion.) Similar excursions are expected in the budgets of 2020-2022.

In other words, Kahlon has created a serious structural problem, a long-term one that endangers economic stability, all with the backing of “Mr. Economy,” Benjamin Netanyahu.

Israel desperately needs a responsible finance minister, someone who will work for the benefit of the state, even at a heavy short-term political cost. It needs a finance minister who will make cuts and carry out painful reforms where necessary, and who will courageously stand up to pressure groups while taking unpopular steps.

The numbers prove that the changeover the country needs is not just a political or social one. One can hope that the next government includes a finance minister whose economic conduct is more sober and civic-minded.

The above article is Haaretz’s lead editorial, as published in the Hebrew and English newspapers in Israel.