The election campaign in Israel has scarcely begun and already Israeli voters
have been inundated by facts and arguments that amount to what the
vice-presidential candidates in the United States like to call “malarkey” –
words intended to mislead.
Israeli voters who do not want to be surprised
with what they get after the elections should spend a few minutes analyzing the
statements and arguments made by the candidates. Economics is a good place to
start, both because it is the ostensible reason for the new elections and
because it will be central to all the candidates’ platforms.
began with a short speech by Prime Minister Binyamin Netanyahu that included a
brief reference to the alleged success of the outgoing government’s economic
“While other countries have economic policies that have led to
mass unemployment,” said Netanyahu, his government has “created a record number
of 330,000 jobs.”
The number may be right, but Netanyahu is ignoring the
fact that his government has added 150,000 of these new workers to the public
sector. These jobs have been financed by tax hikes and deficit spending, meaning
current and future taxpayers have been and will be left with less income to
spend on goods and services in the growth-creating private sector. These
public-sector jobs come at the expense of private-sector ones.
continued by saying that “in other countries, they have enacted giant cuts
whereas we have increased investments in education, health, infrastructures,
Unfortunately, you cannot have your cake and eat
it, too. It is precisely the years of deficit spending on similar “investments”
that are the “economic policies that have led to mass unemployment” that
Netanyahu referred to, and to a massive economic crisis and possible insolvency
which forced such countries to enact “giant cuts.” It is unlikely that
“investments” financed by debt will lead to different outcomes in
Not that the prime minister’s challengers have made sounder or
more factual statements on economics.
His main rival according to the
polls, Labor Party chairwoman Shelly Yacimovich, recently argued that “under
Netanyahu’s leadership the public sector has shrunk after it has been
privatized, dried and cut.”
The truth is that the current government has
added 150,000 jobs to the public sector and increased real government spending
per citizen by 5.5 percent since 2010. So much so that hikes in the Value Added
Tax, the gas tax, the corporate tax and other sources of revenue have not
sufficed to meet the deficit target.
Then Yacimovich claimed that as a
result of the alleged shrinking of the public sector “the middle class is forced
to pay out of its own pocket for what it justly deserves.”
justly deserve is a matter for political debate, but that someone has to foot
the bill is a plain and simple fact. Since the middle class forms the largest
share of the tax base, it will have to pay for whatever services it receives,
either through direct payments made to the service providers or through
taxation. Further, in the case of government-provided services the middle class
will most likely pay more, because it will be forced to pay for services it does
not use and which benefit either the poorer populations or, more often, the
Another contender, Yair Lapid, who heads the new
Yesh Atid party, called on his Facebook page for “finally talking about what
really matters: education, housing, aid to small businesses....” Obviously,
these are all important issues, and on his website Lapid offers proposals on how
to deal with them.
Regarding housing, Lapid suggests a major state-run
housing project that would include building 150,000 apartments and renting them
to young couples at 35% below the market rate. He says the project, of
unspecified cost, should be paid for by Israel’s “institutional investors”
rather than by having the government go further into debt.
think this sounds like a good idea, but may not want to alert readers to the
fact that the “institutional investors” are essentially Israel’s pension funds,
and they would be investing Israelis’ retirement savings, not money of their
own. Lapid’s program would mean forcing all Israelis who save for retirement to
put their money into a bound-to-lose project, reducing their rate of return and
forcing many Israelis to age in poverty. Effectively, Lapid's plan would tax
retirement savings and increase the public sector’s budget.
education, Lapid suggests great “investments” but does not point to any source
Regarding small business, he proposes government guarantees
for loans to small businesses. This means the cost of business failures would be
shifted to the government; Lapid does not suggest a source of funding for this
added burden on the taxpayer.
In an unstable global economy and with
tough policy choices ahead, Israelis ought to demand from their politicians
candid talk about the economy. If Israelis accept their fallacious economic
arguments without question they will deserve to be governed by the misguided
policies the candidates propose.
The writer is a research fellow at the
Jerusalem Institute for Market Studies.