The nation is watching with bated breath for the next Facebook post of our minister of finance – Yair Lapid is definitely a greater master of communication than of economics.

In recent weeks he has engaged the country in a spectacular roller coaster ride of expectations – first raising fees for university students, then committing to never do so; first raising tax on fruits and vegetables, then, God forbid, no; first committing in his campaign to reduce funding for settlements, then “Don’t worry,” Naftali Bennett; first reinstating the value added tax on Eilat, then continuing the exception for the holiday resort. So goes the up-and-down ride of Lapid’s budget tours, nearly item by item.

As he retreated on the most unpopular cuts, this week we witnessed his biggest flip-flop – increasing the budget deficit from the 3 percent, as advised by Bank of Israel head Stanley Fischer – who happens to be a master of economics – to a dangerous 4.65%. After all, who wants the students, the trade unions, the people of Eilat, or actually the whole middle class, taking to the streets again in protest? Definitely not Lapid, who not only was elected by the middle class, but wants to be reelected by it, ideally to a higher post.

In this process, Lapid is performing a skillful tango with his partner and opponent Prime Minister Binyamin Netanyahu – “Enemies: A Love Story.” Both seek to craft this budget along coalition needs and political ambitions.

A state budget should reflect the priorities of the state. Policy planning should come before budget planning. The budget should be a function of policy priorities. In our case, it’s budget first, according to narrow political interests, and thereafter fiscal constraints and preferences are turned into policy.

It is, therefore, time to define our national priorities according to which the state budget should be structured. In Israel, long-term policy planning is essential due to the tremendous challenges that face us in all walks of life.

Yet today, long-term policy planning is taboo, as it necessitates making important national choices between an effective peace policy aiming at conflict resolution, and continuing the illusion of no peace, no war; a Greater Israel, or not (funding the periphery in Israel or the settlements in the West Bank); a purely capitalistic society, or a more compassionate one with investment in social services; theocracy or democracy; Bnei Brak or High Court of Justice; equality for all, including the Israeli Arabs, or a quasi apartheid society with second class citizens. None of these fundamental choices has been made by this or the previous government. It’s government by default, not by national priorities.

There is now, therefore, a need to set clear national priorities for the long run and to make difficult yet necessary choices, and only then to set the budget accordingly: • Peace first – Israel in the long run will find it difficult to sustain a war economy with one of the most inflated defense budgets in the world, massive investments in settlements and their security, and international isolation damaging trade and tourism.

This is not to say that peace is necessary merely for economic reasons; it is about our very identity as a Jewish democracy.

Peace in the volatile Middle East will not be a European one, but an agreement with the Palestinians will weaken the axis of Iran-Hezbollah-Hamas and prevent regional war. A viable, serious peace process leading to the desired two-state solution is today more possible than ever.

The Arab world is weakened by inner shake-ups and dependent on American aid. The visit last week of the Arab League delegation to Washington is an important milestone – for the first time the Arab world accepts changes to the 1967 lines.

Mahmoud Abbas’s moderation and mandate to negotiate has been strengthened.

Peace means peace at a price that is well known to all realists and is along the lines of the Clinton Parameters of 2000. But more important it has critical rewards in lives, livelihood, security and economy. It is both the prime national priority and the moral choice. It must be translated into a realistic policy plan based on the Obama vision of 2011 (which refers also to our security needs) and the Saudi peace plan in its new version. We cannot afford to live by our sword forever.

• If peace is life and identity, education is the future – the education of today is the technological and scientific advance of tomorrow.

It is also the future moral code, and the democratic fabric of the country.

Education starts early, in the kindergarten, and should be ongoing for all, in academia and professional training. We are in need of more classrooms, laboratories, better and more teachers, international youth exchanges, etc. A skillful, educated and open-minded young generation will make Israel more prosperous, reaping the fruits from globalization and contributing to it. We must aim to be the leaders in high technology – as the young should rebel against past and present knowledge. We must aim for the young to reach a moral high ground in terms of social empathy, respect for the other, for the different and for human rights. In the modern age, education – more than defense – builds the strength of a country.

• Social justice is not only an outcry of the social protest movement – it is a fundamental cornerstone of a healthy society and economy. We are one of the most unjust societies in the OECD club, with tremendous gaps between haves and have-nots, and a suffering middle class.

Encouraging the private sector as the engine of the economy and creating equal opportunities must and can go hand-inhand.

The Israeli private sector must be allowed to grow for the creation of jobs and exports, given our advanced technology. To be wealthy is not a social curse. In parallel, government must regulate and intervene for those who must catch up – mainly in the periphery and on the outskirts of the cities.

While wealth is not a plague, poverty is.

• Democracy that touches on our very identity is based on equality among all citizens – equality between genders, new immigrants and veterans, periphery and Center, Jews and Arabs. This means that government cannot discriminate, not in favor of yeshivot and settlements, and not against the Arab minority.

The economic well-being of Israeli Arabs is critical to our social and national stability.

We are surrounded by Arab countries; the solidarity of Israeli Arabs is for obvious reasons split between loyalty to Israel and loyalty to the Arab world; we have every interest to see them integrate into society and grow economically. It is a time bomb to be defused, but above all a test of our sovereignty – running a country as a majority, respecting the rights of minorities.

• Economic reforms are necessary: – Further taxation of the private sector by demanding from companies an investment of 1% of their profit in social causes and projects of their choice as part of corporate social responsibility.

– Housing reform by drastically reducing the price of land for construction.

– Privatization of ports and airports despite massive protest of unions.

– Greater freedom of media, including turning Channel 1 into a PBS-like public channel as well as more subsidies to local film and cultural productions.

– Reform of governmental services into more effective e-government service (thereby saving personnel in the inflated public service and bureaucracy).

– Greater gender equality across the board, including introducing affirmative action for senior managerial positions.

– Creation of a special public-private fund for all needy Holocaust survivors within six months. The current situation is a disgrace.

The new state budget should reflect these necessary priorities – peace, education, social justice, democracy and economic reform, and lead to: • a substantial cut in defense spending; • a substantial cut in the settlement and yeshivot budgets; • an across-the-board cut in all ministries except education, health and social services (with special attention to the periphery and the Arab sector); • an increase by 1 percentage point of the income and value-added taxes; • a substantial increase in the education budget (including for research and development in universities).

An economy is not about money. It is about people, their well-being and ability to produce for themselves and for society.

Given the high deficit, stringent measures must be taken now while redirecting the economy to new directions – to a free economy, a socially empathetic economy and a peace economy. Only a reform of policies can lead to a healthier, vibrant and fairer economy.

The writer is president of the Peres Center for Peace and served as Israel’s chief negotiator for the Oslo Accords. Barbara Hurwitz edited this column.

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