Middle Israel: It’s the housing crisis, stupid!

The fourth Netanyahu government’s success may depend on the prime minister’s harmony with his finance minister.

BENJAMIN NETANYAHU and finance minister Moshe Kahlon. (photo credit: REUTERS/BAZ RATNER)
BENJAMIN NETANYAHU and finance minister Moshe Kahlon.
(photo credit: REUTERS/BAZ RATNER)
Asked at 35 whether he expected to become home secretary at such a young age, Winston Churchill said he actually did. “At 35,” he explained, “Napoleon won Austerlitz,” the fabled battle where the vastly outnumbered general defeated two armies in one day.
Benjamin Netanyahu was only an ambassador at 35, but at 65 his aggregate nine years as prime minister already exceed Churchill’s eight-and-a-half, and the end of his years at the Jewish state’s helm never seemed more distant.
Moreover, as he assembles his fourth government he is poised to enjoy deeper maneuver space than during his previous three. Then again, unlike Churchill, Netanyahu’s big battle has yet to be engaged, and as things currently seem, it will not take place in Iran, Lebanon, or Gaza, but in the housing market, where victory will require an alliance of a sort he has previously failed to strike.
Netanyahu has come a long way since his first premiership nearly two decades ago, when the monolithic coalition he assembled alienated the swing vote that three years later drove him from office.
When he returned to the premiership a decade later, Netanyahu displayed a new quest for consensus when he unexpectedly brought Labor into his government, and then also adopted the two-state formula and temporarily froze building in the West Bank.
However, that alliance’s purpose was political stability rather than any program’s execution.
In fact, in less than three years as finance minister, Netanyahu under Ariel Sharon impacted Israelis’ lives more deeply than he did in nine years as prime minister.
The reformist zeal with which he stormed that position in 2003-2005, when he slashed social spending, cut taxes, sold state assets, privatized the pension industry, decoupled the seaports and deregulated the savings industry, has had no equivalent in the political career he launched when he entered the Knesset 27 years ago.
If anything, the common denominator between Netanyahu’s three premierships has been the preservation of the existing order, and a reluctance to disturb it.
His first premiership was characterized by fiscal frugality, welcome in its own right, after the Rabin-Peres government’s ambitious spending on highway construction and salary hikes for teachers and doctors, all of which left a yawning $5.2 billion current-account deficit.
However, the Netanyahu of that stint did not deliver reforms. Bank Hapoalim’s sale, which he completed in 1998, had been in motion when he arrived. Even the Hebron Agreement he signed with Yasser Arafat, which was hailed at its time as extraordinary pragmatism, was in hindsight an attempt to conserve what he inherited from his predecessors.
When he returned to the premiership in 2009, there was widespread expectation, by his followers and even more so by his opponents, that Netanyahu would pick up from where he had left off four years earlier as finance minister, presumably cutting more taxes, selling more assets, and launching more reforms.
That didn’t happen. Netanyahu’s second premiership delivered little reform, though it should be noted that it was burdened by the meltdown in Wall Street which created extremely unfavorable economic conditions worldwide.
Netanyahu’s second government could therefore be excused for having left tax rates intact, other than a moderate cut in VAT, and for failing to deliver the railway to Eilat which he presented as his flagship infrastructure project. Circumstances eluded him. Similarly, his crowning achievement those days, the border fence with Egypt, was a response to an external crisis, in that case an influx of illegal immigrants, rather than a preconceived project planned over years with a long-term view. The extent to which his government’s deregulation those days of the cell-phone market was his idea, or then-communications minister Moshe Kahlon’s – remains a subject of debate.
That was the backdrop to Netanyahu’s biggest retreat those days, when he failed to deliver on his promise to offload state-owned real estate and thus slash housing prices.
IF THE EGYPTIAN border fence’s construction was strategic improvisation, the land reform’s shelving was strategic paralysis. Netanyahu withdrew his land reform in 2009 because of a three-way siege by his allies.
On the one flank he faced Labor, which argued that privatizing land would benefit property tycoons rather than homebuyers.
On the second, he faced Bayit Yehudi, which claimed that privatizing patches of the Promised Land would violate the biblical dictum “the land must not be sold beyond reclaim.” And lastly, he faced Moshe Ya’alon, then minister of strategic affairs, who feared massive land sales would result in hostile takeovers.
Odd as this mixture of socialist myth, religious dogma and conspiratorial paranoia was, it proved sufficiently potent for Netanyahu to renege on his election campaign’s major vow. Two years on, his economic vindication arrived fast, big, and blunt, when thousands poured to the streets demanding cheaper housing.
Even then, however, Netanyahu failed to reintroduce his own reform, choosing instead to placate the protest movement on other social fronts, like kindergarten tuition.
Finally, in his third government, Netanyahu had a new opportunity to pass his land reform as his major coalition partner, Yesh Atid, was as pro-market as him, and so was the reinvented Bayit Yehudi under Naphtali Bennett’s leadership.
Just why Yesh Atid leader Yair Lapid did not storm the cause of land reform is unclear.
What is clear is that he and Netanyahu failed to create a strategic alliance that could have cooled the housing market where prices have soared by 54 percent over the past decade, a period when the economy grew by 41% and the average income by just 8%.
The estrangement between Lapid and Netanyahu was not helped by the former’s declaration two years ago that he expects to become prime minister. With or without relationship to that statement, rather than see in Lapid a strategic partner, Netanyahu saw in him a strategic enemy. Evidently, that is what made Netanyahu call an early election, a gamble that even his rivals now admire, as it dwarfed and sidelined Lapid, who will now be replaced by partners with whom Netanyahu feels more comfortable.
Still, while Lapid is gone, the housing crisis that has overshadowed Netanyahu’s second and third premierships has not gone, nor has the economic need for a politically empowered finance minister.
In this regard, when facing finance minister- designate Moshe Kahlon, Netanyahu will be asked to recall not Lapid’s stint as treasurer, but his own, back when Ariel Sharon, to everyone’s astonishment, swapped the Treasury and Foreign Ministry between Netanyahu and Silvan Shalom.
NETANYAHU’S SUCCESS as finance minister resulted from the combination of the conviction and motivation that he brought, and the political backing that Sharon provided him.
The unwritten deal between the two was that Netanyahu will get from Sharon all the support for his reforms as long as he left foreign and security affairs to Sharon. This deal worked smoothly, until Netanyahu’s resignation as the withdrawal from Gaza approached.
It was the kind of deal that did not exist between Netanyahu and Lapid, who as a party leader kept challenging Netanyahu on a variety of non-economic issues. With Moshe Kahlon, however, such a non-belligerency deal seems feasible, and also in the works.
Kahlon limited his demands strictly to the economic sphere, as he requested besides the Treasury also the ministries of Construction and Environmental Protection, as well as the Knesset Finance Committee and the transfer of the Planning Authority from the Interior Ministry to him.
Netanyahu can’t deliver all these requests, especially the Finance Committee, which he has promised United Torah Judaism, but he has generally agreed to Kahlon’s requests.
Now it remains to be seen whether he will treat Kahlon as the rival he saw in Lapid, or as the partner Sharon saw in his own treasurer.
A soft-spoken former auto-parts dealer whose personality is the opposite of the extroverted, former TV star Lapid’s, Kahlon will be more humble and less confrontational.
Better yet, from Netanyahu’s viewpoint, Kahlon shares the prime minister’s vision for the housing market, and fully agrees it is the most urgent issue that the Jewish state must now address.
At the same time, there is a populist side to Kahlon’s plans that Netanyahu the conservative might confront, particularly the former’s quest to relax the Bank of Israel’s prerequisites for opening up new banks, and to cap commissions for low-income families.
Even so, circumstances are generally allowing the two men to forge an alliance that will dominate the next government and shape its path.
Iran is a big problem, but the action it requires is mainly diplomatic, and as such will not preclude the economy’s domination of the next government’s agenda.
Moreover, the mayhem throughout the Middle East means that potential enemies are busy with themselves, thus leaving Israel more time to deal with itself. The same will go for the US, which will be increasingly immersed in its approaching presidential election. All these will gradually leave Netanyahu’s fourth government alone.
The ones who won’t leave Netanyahu alone are the sizzling housing market’s victims, from the thousands of young couples who must earmark 140 average monthly salaries in order to buy an average apartment, to the 470,000 low-income households who live in rented apartments where prices climbed over the past decade by 60%.
That is the main battlefield that awaits Netanyahu as he prepares to launch his fourth premiership. His willingness to strike the alliance that victory in this battle requires will decide whether it will be his Austerlitz or his Waterloo. • www.MiddleIsrael.net

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