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
“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
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.
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
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.
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
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.
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
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
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
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
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.
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
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
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.
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.