Israel's Finance Chief Remains the Candy Man

Israel has skirted an economic crisis, but there might be one, and the people will condemn their spendthrift finance minister

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Finance Minister Moshe Kahlon speaking in January 2018.
Finance Minister Moshe Kahlon speaking in January 2018.Credit: Ilan Assayag

Finance Minister Moshe Kahlon doesn’t like journalists, especially not commentators on the economy who criticize him. He’s also not crazy about economists at his ministry’s Budget Division. He may show them respect in public and even ask for their opinion at ministry meetings, but in the end he steamrolls them and does whatever he wants.

When Yair Lapid was finance minister, he paid no heed to the division’s economists either, but unlike Kahlon, he offended them in public, creating antagonism that worked against him. Kahlon is more sophisticated.

In any case, Lapid and Kahlon have diminished the Budget Division to an all-time low. Its people can’t undertake important reforms or defend the budget guidelines. The ceiling for annual budget growth has been breached year after year, as has the budget deficit. The Budget Division experts will say: “We tried, we spoke up, we warned, but Kahlon decided otherwise and that’s his prerogative.”

True, it’s his call, but the division once had economists who used their personal and professional standing to stop a minister’s irresponsible acts. Today there aren’t any. Today they’re afraid to express their opinion in public, and the division's head, Shaul Meridor, is looking at his shoes and saying the 2019 budget is “good and proper.” So sad. So dangerous.

The problem is, the economists are crying wolf, and there’s no wolf – there hasn’t been a crisis. Kahlon is submitting an election budget that sells Israel’s future for votes, and no crisis. He has been breaching the budget framework from the moment he entered office, and no crisis. He’s wasting huge amounts of money rather than focusing on investment and productivity increases, and no crisis. He’s increasing the deficit to the maximum possible; central bank chief Karnit Flug criticizes him, and no crisis.

And he isn’t passing important reforms, because he doesn’t want to fight with anyone, and no crisis. Economic growth per capita is very low – 1 percent – but even that hasn’t been a good enough reason for a crisis. So maybe we have to look for a new Aesop to write a reverse fable on the cricket and the ant.

But we’ve been through similar rounds in the past and seen spendthrift, irresponsible finance ministers who thought only of the ballot box and not of the economy’s future. Then came Judgment Day.

Let’s take one scenario as an example. World markets, which have been rising for years, will peak and drop sharply. This will be followed by the Tel Aviv Stock Exchange and Israel will downshift. The high-tech investors will disappear, the start-up acquisitions will halt, the public’s wealth will shrink and consumption will wither.

The crisis will weigh on businesses, lead to layoffs and pay cuts, and Israel’s healthy tax receipts, which stem from increasing consumption and pay rises, will shrink and prove acutely insufficient. The budget deficit, planned at 2.9 percent for 2019, will soar to 6 percent.

Then the credit rating agencies will put pressure on Israel to raise taxes and cut spending, to return to a reasonable deficit, and the government will have no choice but to do this at the least suitable time. The crisis will deepen, unemployment will rise, wages will erode and allowances will be slashed. And from every direction the people will cry: What a bad finance minister, how dare he leave us exposed to the winter’s cold.

And that’s just one scenario. The crisis could come from a thousand directions; for example, growing demands by trade unions and pressure groups to increase spending, allowances and wages, both this year and next, an election year. This is something expected when we have a finance minister who has money to spend and boasts of the benefits he has increased. Or the trigger could be an unplanned war against Hezbollah or a real-estate crisis. The dangers are many and the economy is exposed.

But Kahlon isn’t impressed by all this. As far as he’s concerned, there’s no chance the deficit will double and cause a crisis. And if it does, it will happen after his term. That’s why he continues to hand out the goodies and laugh at the hardworking ant. Like the cricket, he’s not preparing at all for the hard winter.

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