Even before being appointed finance minister, as is widely expected, Yesh Atid
leader Yair Lapid has been forced to compromise on a key campaign promise: The
cabinet he joins will reportedly have as many as 24 members instead of the 18 he
advocated.
With a budget battle awaiting him right out of the gate,
Lapid’s idealistic campaign promises are set to come face-to-face with economic,
legal and political realities quickly and mercilessly.
Perhaps just as
challenging, the former journalist will have to contend with his own words, both
from the campaign trail and from his years as a columnist and television
host.
Already, a YouTube video of a 2002 interview he did with
then-finance minister Binyamin Netanyahu has gone viral; in it, Lapid urges
Netanyahu to give a quick, simple explanation of an economic policy, because “I
don’t understand anything about economics” and the show was running out of
time.
On Thursday, the Finance and Justice ministries circulated a
proposed amendment to the state budget law to give the new government 120 days
instead of just 45 to pass a budget. In that time, Lapid will, by law, have to
propose a 2013 budget that cuts projected spending by about NIS 14 billion. On
top of that, he will have to include either further spending cuts or find
several billion shekels of additional tax revenue to reduce the budget deficit
to its 3 percent target.
How will he do that? A study released last week
by the Van Leer Jerusalem Institute argued that increasing the deficit to 3.3%
for 2013 could actually be beneficial for long-term growth, though the Bank of
Israel has yet to agree. In his campaign, Lapid promised not to increase the
deficit, saying it would undermine Israel’s credibility and continue digging it
deeper into a fiscal hole.
If the deficit target is to remain, he may
need to find new revenues, but Lapid promised not to raise taxes on the middle
class.
Though avoiding further income tax hikes is possible, a number of
the ideas budget experts have floated to raise revenues would still affect the
middle class indirectly.
He said he was against canceling VAT exemptions,
like those carved out for Eilat, for example.
On the spending side, the
problem is more complex. In his campaign, Lapid railed against the Histadrut
national labor federation, citing skewed public sector salaries. While leaked
transcripts from the Trajtenberg Committee for Socio-economic change revealed
that state workers in the fields of transport, ports, and utilities got paid 34%
more than private sector counterparts, the powerful Histadrut has made no qualms
about flexing its muscles ahead of a budget fight, demanding, among other
things, additional incentive pay. In the past month alone, it has either called
labor disputes or enacted labor protests against the Public Security Ministry,
the Foreign Ministry, the Prime Minister’s Office, local authorities, public
hospitals and civil service offices. The compromises Lapid will likely have to
make when the inevitable labor strikes start will also amount to broken
promises.
Lapid bet most of his fiscal chips on cutting subsidies for
yeshiva students, child allotments that benefit the ultra- Orthodox, and
settlements.
While the first two sets of cuts may be easier with the
ultra-Orthodox parties out of the government, his coalition with Bayit Yehudi
takes action on the latter squarely off the table.
Though many budget
experts agreed with Lapid’s assessments that defense spending could be cut NIS
3b., the budget sequester in the United States may cost millions more in defense
dollars, complicating plans for an already politically charged budget.
In
opposition to the outgoing Finance Ministry’s plans to raise the retirement age,
which would bolster Lapid’s goal of enlarging the labor force, in his campaign
he came out against the move, offering, instead, programs to encourage continued
work for the elderly.
One campaign promise Lapid won’t have trouble
keeping is his plan to empower government agencies at the expense of the
Treasury’s own power. But whether he is willing to restrict his own authority
once in the minister’s chair is a different story.
In the end, whether
Lapid has gained a deeper appreciation of economics in the decade since his
televised comment on the subject may matter far less than how much he has
sharpened his political skills.