Kahlon’s Failure

Israel's Finance Minister raises spending, cuts taxes and distributes gifts to all who ask. He is unfit to be finance minister, and Netanyahu is derelict in his duty as prime minister

Israeli Finance Minister Moshe Kahlon attends a news conference with Prime Minister Benjamin Netanyahu in Jerusalem, October 9, 2018.
Ronen Zvulun/ Reuters

The Israeli public awoke Tuesday morning to a surprise: an excessive budget deficit. It wasn’t a surprise, however, to anyone following the government’s financial conduct. When the finance minister raises spending, cuts taxes and distributes gifts to all who ask, the deficit cannot possibly come as a surprise.

The original inflation target for 2018 was 1 percent of gross domestic product. Finance Minister Moshe Kahlon raised this to 2.9 percent, and even that wasn’t enough for him. Since taking office three and a half years ago, his critics have been warning that he will lead Israel into dangerous deficits. He acts like the minister of distribution, not of finance. It doesn’t seem to have occurred to him that his job is to guard the treasury.

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As soon as he was appointed, Kahlon told the budget division’s economists that their macroeconomic rules no longer applied and he would break them if necessary. He indeed broke them, with the help of his political confidant, director-general Shai Babad. He raised budget spending to an unprecedented extent, and in all areas: the Defense Ministry, the so-called social ministries, government benefits, public-sector wages and employee numbers.

The fact that Israel is not yet in crisis shouldn’t reassure anyone. Tax revenues have spiked, whether as a result of foreign acquisitions of Israeli startups or the early distribution of dividends. But nothing lasts forever. Israel is galloping toward a cliff: empty coffers plus an enormous deficit.

Kahlon did not act on his own initiative, of course. Prime Minister Benjamin Netanyahu is to convene an extraordinary meeting Wednesday to discuss the excess deficit and its implications, as if he was not responsible for what happened. But he is the one who approved Kahlon’s excessive spending and the high deficits all along.

The Knesset isn’t perturbed by the situation. As part of their election economics, lawmakers continue to demand more spending: to raise old-age benefits to minimum wage, to extend the provisions of the Compulsory Education Law so that they begin at birth instead of age 3, to give eligible home buyers a grant of 100,000 shekels ($27,000) and to exempt lifesaving drugs from the value-added tax.

Nor is Kahlon dissuaded: He proposes expanding the Mechir Lemishtaken (Buyer’s Price) program to unmarried home buyers, to give young married couples mortgages that cover 90 percent of the home’s price, to give small businesses 500 million shekels in benefits. It would appear that they won’t slow down until they lead Israel to economic catastrophe, complete with bankruptcies and high unemployment.

The conclusion is that Kahlon is unfit to be finance minister, and that Netanyahu is derelict in his duty as prime minister when he permits this economic irresponsibility. The victims, in the end, will be Israel’s citizens.

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