Inside Out: Netanyahu’s lunch money

On Tuesday evening Prime Minister Binyamin Netanyahu introduced a series of taxes and budget cuts that were designed to help Israel meet its newly increased target deficit of three percent. The slackened pace of Israel’s economy is now forcing Netanyahu to take painful action after three and a half years in power.

“Anyone who says that money can be spent without a thought, without being able to cover it, for populist purposes, is simply placing the State of Israel at risk and could easily lead it to the situation we’ve seen in leading European economies, which are on the verge of bankruptcy,” said the prime minister.

Among other steps, Netanyahu has indicated that VAT will be raised next week to 17%, taxes will be increased on alcohol, cigarettes and gasoline, and all ministries will have their annual budgets cut this year to save NIS 700 million immediately.

A new tax on people who earn more than a million shekels a year is also expected to be imposed in 2013.

Those are legitimate decisions that cannot have been easy to make. With elections in the offing, no one can honestly believe Netanyahu to be eager to take measures that are almost certain to upset voters.

Members of the opposition have already begun to stoke that public anger with alacrity. A statement issued by Kadima accused Netanyahu of “carrying out a confirm kill on the middle class. After having turned his back on the public that serves and the middle class, Netanyahu is now giving them the finger as well.”

Labor Party Chairwoman Shelly Yechimovich similarly criticized Netanyahu’s plan for disproportionately hurting the middle class and the poor, accusing Netanyahu of “dismantling the middle class and crushing it, and dangerously deepening the gaps between the poor and rich. An across-the-board cut of a billion shekels will bring the middle class to its knees. Netanyahu created the deep hole in the budget when he recklessly lowered justified taxes on the rich, and now he is imposing VAT–a cruel, unjust and unintelligent tax that affects the poorest as well.”

Yechimovich was right in her identification of the source of the problem, though only partially so.

The “hole” in the budget was produced not only by lowered taxes on the rich and on powerful corporations.

As economists and government spokespersons have correctly noted, the increase in the deficit is also the product of an Israeli economy that has slowed down in response to factors that lie beyond the prime minister’s control, such as a decline in exports to Europe as a result of the economic crisis gripping the continent.

But the government’s defenders are also only partially right. The deficit has increased as a result of government spending as well. In his public statements on Tuesday, Netanyahu spoke proudly about the relative stability of the local economy in the past few years against the backdrop of the global crisis, saying that Israel had not been equally affected “because we kept the rules of responsible economic behavior and we will continue to do so. We know that there is one simple rule in economics that has to be kept: ‘there aren’t any free lunches.’” So where is the money being spent? Netanyahu cited two examples, both of which were geared to shield him from the opposition’s criticism. The first was security, in which Netanyahu specifically cited the billions that have been allocated to the construction of a new (and popular) fence along the Egyptian border. The second was free education for preschoolers that, as one of the Trajtenberg Committee recommendations, was geared to immunize him from attacks of the sort put forward by Yechimovich.

But Netanyahu refrained from mentioning the billions that his government has spent on issues and projects that are less likely to be looked upon kindly by the general public, which is now being called upon to shoulder the cost of the budget crisis.

According to a study that was reported earlier this week by Calcalist, the state loses an estimated NIS 9.4 billion every year as a result of the extraordinarily low participation of haredi men in the workforce.

Some of that money is paid out to haredi men in the form of stipends that are provided by the Education Ministry and the National Insurance Institute.

Another significant portion of the money is lost to state coffers in the form of discounts on municipal tax, government housing and the failure of this large group of able-bodied people to contribute tax revenues.

Needless to say, NIS 9.4b. is a lot of money, more than twice the projected revenues that are to stem from the hike in VAT.

The Netanyahu government has also been extraordinarily generous in spending money on controversial projects in the West Bank. In the past few months the prime minister has readily dedicated tens of millions of shekels to cover the costs of relocating the squatters in Migron and Givat Haulpana, and by so doing to buy the silence of the settler lobby and the right wing within his party and government.

Another fresh example of unnecessary spending, geared to satisfy the hunger of Netanyahu’s political allies on the right, was provided just last week, when Finance Minister Yuval Steinitz announced that NIS 50m., would be allocated to the academic center in Ariel, once it was made into a university.

The budget crisis Israel is facing is not solely the product of global trends and “populist” spending on education, welfare, housing, transportation and healthcare. This crisis also stems from the sumptuous “free lunches” that Netanyahu’s allies, the haredim and the pro-settler lobby, have been served by this government for the past three and a half years, well above and beyond their equal due as fellow Israeli citizens.

That unconscionable flow of huge sums of money is the first thing that Netanyahu needs to cut off if he truly wishes to behave with the fiscal responsibility he so sternly preaches to the general public.

The author is a veteran Israeli writer and translator.