It’s the Israeli economy, stupid

A guide to what some of the biggest parties are planning.

By NIV ELIS
Ballots are printed ahead of elections 370 (photo credit: REUTERS/Baz Ratner)
Ballots are printed ahead of elections 370
(photo credit: REUTERS/Baz Ratner)
Bill Clinton’s famous 1992 campaign mantra struck a chord for two reasons: The US economy was hurting from a recession, and the economy touches every part of people’s lives.
The dismal statistics of GDP growth, inequality ratios, unemployment and budgets are deeply intertwined with the cost of living, health and education.
Perhaps due to the massive 2011 summer social protests decrying unaffordable housing, perhaps due to the boycotts of high-priced staples such as cottage cheese, perhaps because of the ill-timed deficit explosion and recent tax hikes, the 2013 election campaign in Israel has been more about the economy than any in recent memory.
Politicians have framed the country’s social and political struggles in economic terms, tying everything from army service to the peace process to people’s pocketbooks.
Indeed, after dodging so many political bullets over the course of his tenure as prime minister, Binyamin Netanyahu called early elections over the failure to pass a budget, which will be the first order of business once the next government is formed. A law limiting yearto- year spending increases means that of the NIS 29 billion in new expenditures already promised for 2013, NIS 14b. must be cut from the get-go.
But which party offers the best vision for keeping the economy robust? Voters will provide their answer on January 22, not just based on the party platforms, but also on their personal economic priorities.
The problem with the “economy, stupid,” is that not everyone agrees as to what a good economy looks like, or on what policy is best to get there.
The IMF has called on Israel to keep its deficit in check, decrease market concentration of “too big to fail” banks, corporations and insurance companies, and increase participation in the labor force, specifically saying that participation of “Arab-Israeli and haredi groups need to rise to tackle poverty and maintain the medium-term growth potential.”
The Federation of the Israeli Chambers of Commerce included increasing the participation rate as one of the three benchmarks for the next government, alongside reducing overall public sector spending and strengthening the business sector by reducing “burdens such as despicable regulations, unfair environmental laws, extreme consumer protection laws and the erosion of basic rights such as property rights and freedom of contracts.”
From the “social justice” side of things, however, priorities are somewhat different.
Bringing down prices on basic goods, utilities and housing, in particular, are top priorities.
A Panels research survey taken at the start of the month for Tashtil, a social justice group, found that despite the deficit, a representative sample of Israelis supported increasing spending on health, education, employment issues (such as minimum wage), welfare and housing. When asked to rank five options for possible budget cuts to fill the deficit, they chose settlement-building first, followed by infrastructure, defense, education, and only then health and welfare. On taxes, they also preferred increasing VAT on luxury goods and reducing it on basic items, upping tax on cigarettes and alcohol, and increasing capital gains taxes.
The political parties have laid out their economic agendas to varying degrees of specificity. Below are the key points voters should know about some of the biggest parties, and their plans for the 19th Knesset.
Likud Beytenu: Given the ruling party’s decision to run on its record instead of putting out a specific economic platform, the pervasive sense that the economy is not doing well (despite continued growth) has put Netanyahu and his finance minister, Yuval Steinitz, on the defensive.
Despite the miserable state of the world economy, Israel has not entered a recession, though its economic growth has slowed significantly and consistently. Employment figures continue to be relatively good, foreign investment high, and inflation tolerable.
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Success in bringing down cellular bills by opening up the market is a major talking point for the Likud.
Yet, people are feeling a pinch. Lower than expected growth meant lower tax revenues, which led to the unexpectedly high deficit. To combat the budget problems, Netanyahu and Steinitz raised VAT, property tax and income taxes on several tax brackets, and oversaw higher tariffs on water and electricity.
They have said they will do their utmost to avoid raising taxes again, but are not making any promises.
“As it seems, we will not have to impose tax hikes, and if we do need to, it will be minimal,” Steinitz told the The Jerusalem Post. “But... we will have to wait and see what developments there are.”
Labor: Labor has set out a platform built on five columns: basic services, fairer wages, lower cost of living, fair competition and fair taxation.
Though Shelly Yacimovich has ripped the government over its deficits, her plan includes a major spending push, increasing funds for health, transport, welfare, local authorities, personal security, public housing and youth education.
Yet she has also vowed to lower taxes, at least for the middle classes.
“We won’t raise taxes for the middle class – we will lower them through graduated VAT. We won’t hurt smalland medium-sized businesses, but give moral and economic responses to fill the [budgetary] hole that Netanyahu created,” she said in early January.
Taxes for high-income earners, importers and corporations would go up.
Steinitz slammed Yacimovich’s spending plan, pegging it as a NIS 140b. populist splurge that would make the Israeli economy “look like Spain’s and even worse.”
Bayit Yehudi: Bayit Yehudi leader Naftali Bennett has promised to break monopolies, cut middle class taxes, and boost education and competition.
“Israel must provide a safety net allowing a decent standard of living for those, and only those, who are unable to provide for themselves,” he said.
One of the party’s main economic platforms for tackling poverty is integrating haredim and Arabs into the workforce.
“Poverty is common in the haredi and Arab communities at rates of 55 percent and 53%, respectively,” Bennett said. “The main reason is because of low employment rates of haredi men and Arab women. Increasing employment for these two populations, and giving them tools to do so, is a top social and economic interest.”
At a Post-sponsored debate in Tel Aviv, Bayit Yehudi’s Jeremy Gimpel said that when it comes to Israel’s economic interests, the Likud was beholden to tycoons and banks, while Labor was beholden to unions.
Meretz’s Mossi Raz shot back that Bayit Yehudi was beholden to settlers.
Yesh Atid: Yair Lapid has dubbed his party the “Shas of the Israeli middle class,” and has promised to cut funding to settlements and haredim, and to roll back waste in the financially unstable Israel Electric Corporation, and with overpaid port workers in Ashdod.
One of the party’s frequent promises has been to cut back the size of the government and limit the number of ministers, a move which, given the level of government expenditures, would have more implications for political stability than for the deficit.
Yesh Atid agreed with Labor on luxury taxes, saying that Mercedes buyers should pay double the tax rate of Subaru customers. It put forth a housing platform by which public land would be opened up to private investors to build apartments, a portion of which would have to be available for public purchase.
It also vows to increase competition by lowering import tariffs.
Lapid has called for cutting red tape by creating “one-stop- shops” for overlapping and sometimes-competing regulatory bodies as well.The Tzipi Livni Party: For Tzipi Livni, the No. 1 priority, economic or otherwise, is sealing a peace deal with the Palestinians.
Accordingly, her plan cuts spending on settlements and haredim.
The party has vowed to increase the minimum wage, provide the differential VAT also touted by Labor and Yesh Atid, and increasing fees for mining. As the environmental party (its list has absorbed the Green Movement), it is against giving up state-owned land, even for housing, but has promised to incentivize building, especially in the periphery.
Livni describes her economic philosophy as free market with room for intervention and regulations in the case of market failures.