Finance Minister Moshe Kahlon has faced tough criticism over his fiscal decisions for the 2017-2018 budgets, but has been trumpeting the associated reforms as an important advance for Israel’s economy. Policy experts, however, have been unimpressed at the level of the reforms, saying they don’t go nearly far enough to address some of Israel’s deep-rooted economic problems.
“The short answer is that the budget contains very minor structural changes, none of which should actually be included in the budget or economic arrangements law, but should pass in the regular channel of legislation,” said Yohanan Plesner, president of the Israel Democracy Institute (IDI).
“Not deciding to put the Israeli economy on a different economy is a decision; it’s a missed opportunity,” he said.
The budget, Plesner stated, was a missed opportunity to enact the recommendations of the Locker Committee on defense spending, which dealt with tough issues such as retirement and bridge pensions. It also steered clear of angering haredi coalition members, maintaining a haredi exemption for core curriculum studies that would keep a significant portion of the population from gaining productive skills.
Not enough was done to improve human capita, he continued, saying that professional schools needed an upgrade.
Plesner also said that the Alalouf poverty report, which MK Eli Alalouf of Kahlon’s own Kulanu party wrote, was not implemented fully enough. The budget doesn’t address problems on budget-linked pension spending, he explained, which is an expensive liability.
“The fact that you’re not seeing any of the strong interest groups in the Israeli economy saying anything about this budget is another indication that it didn’t deal with the fundamental challenges,” he said.
Dan Ben-David, who heads the Shoresh Institution for Socioeconomic Research, agreed, calling it “the reform that isn’t there” and citing two issues in particular that, in his view, are problematic: a lack of education reform and a lack of transparency.
“When about half the children in Israel are receiving a Third World education today, they will only be able to contend with a Third World economy as adults,” he said.
Without attempts to better educate Israel’s children, he added, the country will eventually lose wealth, defense capabilities and technological prowess.
The lack of transparency, Ben-David said, was linked to the problems the budget reforms fail to address.
“There is a reason why our roads and hospitals are among the most crowded in the developed world – they weren’t 40 years ago – and why our schools are among the worst today,” he stated. “This is not a destiny written in stone. It is a reflection of national priorities, and these are determined by the budgets that the governments choose.”
The lack of transparency, he continued, make it difficult to assess how much is actually spent on education, welfare, the periphery, the haredi community, settlements and so on.
“Imagine how voting patterns would look if people actually knew what they were voting for in terms of amounts that are being spent on their root needs, as opposed to the demands of much narrower groups with much greater political clout,” he explained.
Still, there are bright points indicating progress, according to the IDI’s Plesner, who used the word “courageous” to describe the taxation policy giving big incentives to hi-tech companies.
“Given the social protests and the anti-business trend, it was right and courageous to accept that we are competing in a global business environment and we need to provide incentives,” he argued.
Efforts to reduce regulation are also a step in the right direction, as are efforts to create new price mechanisms for infrastructure, making it easier to build around the country, Plesner said.
Given that the budget is a must-pass bill, he described it as an opportunity to take bolder steps.
Other, deeper reforms, however, would be tougher to pass on their own. Because the current budget plan stretches through the end of 2018, and few big changes are likely to be made ahead of scheduled elections in 2019, he explained, there will be few opportunities to push for deeper reforms.
“They’re all good initiatives, but I wouldn’t define them as strategic,” he said. “It’s not reckless, but it’s not a breakthrough.”