Wanted: A Better Budget for Israel

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The Good Old Days: Lapid and Netanyahu during the previous government.
The Good Old Days: Lapid and Netanyahu during the previous government.Credit: Emil Salman

The abrupt adjournment of yesterday’s budget meeting between Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid may actually be a good thing. After all, the agreement that seemed to be developing between them was disappointing, and even worse – dangerous to the economy and society. Even now, each of them wants to come out of this with an “achievement” that will put him in the best public position for the next election. Netanyahu is trying to portray himself as “Mr. Security,” which is why he wants the defense budget boosted; Lapid is “Mr. Social Justice,” who is proud of his zero-VAT plan for new apartments and insists on not raising taxes.

The addition to the defense budget is a mistake. At issue is a huge bureaucracy whose budget is already larger than the defense budgets of all the surrounding Arab states combined. If it gets those additional billions it will never reorganize the military’s structure, nor do anything to confront manpower surpluses, early retirements, the Rehabilitation Branch, the delegations abroad, or any other area that requires fundamental restructuring.

The zero-VAT plan that Lapid is so proud of not only will not lower home prices, it will raise them – at least those that will not be covered by the plan, which is the overwhelming majority of homes. It’s enough to recall the words of Deputy Finance Minister Mickey Levy, who explained from the Knesset podium in May 2013 why the zero-VAT proposal was awful. But then the proposal was being made by United Torah Judaism; this time it’s Yesh Atid’s idea.

Lapid’s crowing about not raising taxes is also problematic. After all, enlarging the budget deficit is essentially imposing a tax on the weakest and most vulnerable. A large deficit of 3.4 percent will lead to higher government debt, which will come at the expense of education, health services, and welfare. A large deficit will also worsen the debt-to-GDP ratio, a clear change of direction that will lead to drops in Israel’s credit rankings, higher interest rates, reduced investments, depressed private consumption, an economic slowdown and higher unemployment.

The first to be fired will be those lowest on the totem pole. After that, middle class employees will feel the heat, as they pay more for their mortgages and overdrafts, all the while facing a greater risk of being fired.

Nor does the new budget contain any important reforms. There is no proposal for more flexible management in the public sector, no canceling of tax exemptions like the VAT exemption on fruits and vegetables, no higher pension contributions by public-sector workers, and no rise in women’s retirement age. The result is that 2015 will be a wasted economic year, with low growth and a high deficit, which will lead the economy downward toward an unavoidable crisis. It would behoove Lapid and Netanyahu to draw up a better budget proposal than the one currently on the table.

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