Analysis: A budget of contradictions

The trick is how you look at it.

Opposition leader Shelly Yacimovich presents her red line 37 (photo credit: Marc Israel Sellem/The Jerusalem Post)
Opposition leader Shelly Yacimovich presents her red line 37
(photo credit: Marc Israel Sellem/The Jerusalem Post)
Only in Israel could the same budget proposal declare both that its spending growth is higher than any budget in the past decade and that its spending cuts are deeper than any in the country’s history.
The trick is, of course, how you look at it.
According to the budget proposal released Tuesday, the deficit for 2013 was on track to hit 5.5 percent of GDP due to previously promised expenditures, so the new 4.65% deficit is lower than that, no doubt.
Then again, it’s higher than the 3% target that had been set by the last government, a target Bank of Israel Gov. Stanley Fischer was hoping to maintain. Though it may be tough for non-economists to care about abstract things like the deficit or the debt, those numbers have very real impacts. According to the budget proposal, in 2013, Israel expects to pay NIS 39b. in interest payments on its debt.
That’s 80% of the amount it’s spending on defense.
Part of what has been lost in the conversation about the budget being slashed left and right is the fact that many of the cuts are, ultimately, not really cuts. A large amount are reductions to promised expenditures. If I promised to give you $10 next week, and then realized I could only afford to pay you $5, is it a $5 cut or a $5 increase over what I’m currently giving you? That’s how a budget can magically seem to grow and shrink at the same time.
Lapid, however, is trying to have it both ways.
On the one hand, he isn’t sticking to a solid path of fiscal responsibility by allowing the 2013 budget to rise more than 50% above its original target. That means he can avoid scaling back all sorts of cuts and tax increases that would cause a public uproar.
On the other hand, he’s laying out plans to return the deficit to 3% in 2014, thereby having to make all those cuts. As a result, he has upset both the fiscal conservatives who wanted credibility for Israel’s debt management policy and all the groups that will eventually feel the cuts.
He promised to refrain from increasing taxes on the middle class during his campaign, going so far as to mock Prime Minister Binyamin Netanyahu with a cartoon bomb summarizing Netanyahu’s tax increases in “terms he could understand.”
But to the delight of Shelly Yacimovich, who pulled out her own cartoon tax bomb to mock Lapid on Tuesday, he has been forced to break his word, painfully cutting away at welfare benefits that will lighten many poor and middle-class pockets. Now he promises his constituents that it will help in the long run.
As Lapid is learning the hard way, campaign promises and slogans have little bearing when it comes to making policies. Try though he might, he can’t have it both ways.