A Fresh Perspective: Slash the budget

After a lot of heavy negotiations, the budget has finally been approved by the government and passed on to the Knesset for final approval.

August 27, 2015 14:21
The Knesset

The Knesset. (photo credit: KNESSET SPOKESMAN'S OFFICE)

After a lot of heavy negotiations, the budget has finally been approved by the government and passed on to the Knesset for final approval.

However, the negotiation process has provided some valuable insight as to the extreme superficiality of economic policy in Israel. As the dust settled from the negotiations, every minister started discussing what he had accomplished during those negotiations.

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Miri Regev spoke of an unprecedented accomplishment for the Culture and Sport Ministry, with its budget rising by close to half a billion shekels, to over NIS 1b.

Naftali Bennett also took credit for raising the budget of the Education Ministry by NIS 4.9b.

Haim Katz took credit for raising the budget of the Ministry of Welfare and Social Services by NIS 1.3b.

Why is it that these politicians think they will raise support from their electorate by announcing that they are spending more of our money on things we do not want? After all, if we wanted more cultural programming, we would buy more tickets to the theater or the opera. If the only way for them to get funding for these programs is to coerce the citizens of Israel to fund them through taxes, then there must not be much of a demand for them.

Most importantly, why is it that not even one minister came out and took pride in reducing the budget of his ministry? Why are we not hearing ministers talking about making their ministry more efficient – spending less money to accomplish more? Why are we not hearing ministers talking about leaving money in the pockets of regular Israelis and letting them decide what to do with it, rather then government deciding? Israel has a strong economy, but it also has some serious problems within its economy.

However, the problem is definitely not that the budgets of the various ministries are too small. The problem, rather, comes from paternalistic regulation, which raises prices; state intervention in the free market, which also raises prices; and the lack of competition in many sectors, which, yes, also raises prices.

With the current model of thinking where instead of solving these real problems, politicians just ask for more and more money, Israelis are left with less money and higher prices. By cutting spending, and focusing on solving these real problems, Israelis would be left with more money in the bank and lower prices at the cash register.

Paternalistic regulation

Instead of concentrating on spending more of our money, policy-makers should work on removing paternalistic regulations that hurt the market and raise our prices.

For example, until recently, it was impossible to import soy milk into Israel. Why? Israeli regulators made it illegal to use the term “milk” for anything other than actual milk.

This meant that any international company producing soy milk would need to create a special line of products omitting the word “milk” in order to legally sell it in Israel. The result? A complete lack of competition in the market for soy milk in Israel and very high prices for soy milk.

Naftali Bennett, as economy minister, abolished this ridiculous regulation. This is a step in the right direction, but much more is needed.

Recently, the Health Ministry in Israel decided to rule against Heinz tomato ketchup, claiming that it is not ketchup! You heard it correctly: Heinz, which is almost synonymous with ketchup in America, cannot call its product “ketchup” in Israel anymore. The reason is that the Health Ministry claims not enough tomatoes are used in the ketchup to warrant the use of the word “ketchup,” and that Heinz’s ketchup should be called “tomato seasoning”.

Of course, the body that pushed for this decision was Osem, Heinz’s biggest competitor in the Israeli ketchup market. The decision is sure to bring the price of ketchup up, as the market for ketchup now risks becoming a monopoly with little to no competition, where Osem is the only product on the market.

The common denominator in both examples is a false belief that government knows how to make decisions better than the private citizens. This is what pushes governments to decide for us and establish ridiculous regulations that hinder our freedom to choose. Does the government not believe that we are smart enough to differentiate between soy milk and regular milk? Can we not read the ingredients in Heinz ketchup and realize that it is made of very few tomatoes? Instead of giving us information and letting us choose, the government is trying to decide for us. This creates serious problems in the market, raises retail prices and, of course, greatly hinders our freedom. These are the issues politicians should work to fix.

State intervention in the free market

A different example of intervention in the free market can be seen though price control.

Now, price control, in my opinion, is always negative. Price control warps the market and, while trying to reduce prices, actually ends up raising them heavily. Much has been written about this subject, and yet many products in Israel are still under price control, and politicians keep promoting the addition of other products to the price-control list.

However, one thing that is unique to Israel is a price-control law that tries to make sure the price of a product will never be too low! A few years ago, Israel passed the Book Law, banning discounts on new books. The claim was that writers were having a hard time making a living with the low prices of books. The opponents of the law back then claimed that the law would hurt the sale of books, because of high prices; hurt new authors, who can count only on attractive sales in order to be known; and decrease the number of people who read books. This is exactly what happened.

In the book festival this year, one publisher, Rotem Sella, challenged the law and offered a sale on new books he published. The result? Sella got fined millions of shekels.

Can you believe this? The government is fining a merchant for providing good prices to his customers! This again is an example of government trying to regulate something that should be left to market forces. If there are enough writers that want to get their art sold and read at low prices, then let it be. And if some authors claim to be on a much higher level that warrants higher prices, then let them try to sell their own books at those prices. The market competition will define what is true and what is not.

The good news is that MK Yoav Kisch of the Likud is already pushing to get this law repealed, and Regev has promised to also look into it. Therefore, there is still some hope for young authors who hope to get known.

Stop taking money, start working

Ministers in Israel seem to misunderstand their job. When they get into a new ministry, they often believe that they are to represent the interests of those who are in this market. The agriculture minister will want to represent the interest of farmers, the culture minister will want to represent the interest of artists, and so on. However, ministers must represent the interest of all citizens of Israel with respect to a certain subject. This interest is not necessarily the growth of the budget of this ministry. Actually, often the exact opposite is true.

Instead of taking more of our money, ministers should strive to make their ministries more efficient, as well as the market they are responsible for. This is a much more difficult job, since it means looking through a lot of technical regulations, understanding the ins and out of economics, and working against interest groups who benefit from market inefficiencies.

However, this is what the citizens of Israel should expect from their ministers.

Therefore, the next time a minister proudly speaks about growing the budget of his ministry, ask him why he is taking away money from hard-working citizens instead of working hard to justify the money he is being paid and the mandate he received from his electorate.

The writer is an attorney and a former legislative adviser to the Knesset’s coalition chairman. He previously served in a legal capacity at the Foreign Ministry. He is a graduate of McGill University Law School and Hebrew University’s master’s program in public policy.

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