Steinitz’s advice to Lapid

Outgoing finance minister recommends to successor: Cut spending carefully, keep two-year budget.

Yuval Steinitz 370 (photo credit: Hadas Parush)
Yuval Steinitz 370
(photo credit: Hadas Parush)
Outgoing Finance Minister Yuval Steinitz on Monday offered words of advice to his successor, widely expected to be Yesh Atid leader Yair Lapid, urging him to maintain the two-year budget framework and warning that impending cuts might impede growth and employment.
Speaking at the Knesset Finance Committee, Steinitz said, “The next budget won’t be easy, because it will be cut by billions of shekels. The government and Knesset must decide on a difficult path [to encourage] increasing investments and job growth; budgetary restraint, with an emphasis on growth engines.”
“The most important thing,” he added, “is high growth and low unemployment.”
Steinitz also urged his successor to continue three economic policies: the two-year budget, the creation of incentives for international investment – especially in export-oriented markets – to help Israel keep afloat through global economic difficulties, and the maintenance of an efficient oversight of the defense budget, due to its influence on the national economy.
Steinitz used the opportunity to tout Israel’s economic accomplishments under his tenure. The economy went from shrinking 2.4% in 2009 to growing 3.1% at the end of 2012.
The debt burden fell from 79.4% of GDP to 73.8% and Israel’s credit rating rose to A+ from A.
The unemployment rate fell from 9.5% to 6.5%, despite projections it would hit 12-15%. GDP per capita grew 5.2%.
As the four greatest accomplishments of his tenure, Steinitz cited the adoption of the two-year budget, acceptance into the OECD, the passage of the Sheshinksi Commission recommendations on how to tax Israel’s gas resources, and the economic reform of the defense establishment.
In his last official opportunity to cement his reputation, Steinitz also ventured into somewhat misleading territory.
“This was perhaps the longest run of a finance minister in Israel and also the most turbulent, with the worst economic crisis, domestic and global, to ever hit the world,” he said.
In fact, Israel’s first finance minister, Eliezer Kaplan, served longer, as did Pinchas Sapir, whose two separate experiences leading the ministry outlasted Steinitz’s own.
That, however, ended in 1974, and since then, only Avraham Shohat (1992-1996) came close, though Steinitz bested him by a month.
Steinitz also reported that investment in Israel rose by 5.1% in 2009 to cumulative growth of 38.1% from 2010- 2012. For those keeping track, that’s an average of 12.7% a year, but even that figure is inflated because it uses 2009 as the base year, so it “double counts” investment growth.
At a recent roundtable with The Jerusalem Post, economic experts disputed the significance of the Finance Ministry’s figures.
“You see what happened at the top, but what happened in the bottom is hidden. In the macro it’s hidden,” said Israela Many, chief economist of the Federation of Israeli Chambers of Commerce, arguing that the growth has been unevenly concentrated within certain segments of society. “When you look at the micro and start to section off the population, you see it,” she said.
Journalist Yehuda Sharoni questioned what kind of effect government policy had on the data. “I say yes, there was an effect, but a negative one,” he said.
Others were more sympathetic.
“We have a tendency to look at the bad things. Steinitz has not been a bad finance minister,” said Ruby Ginel, Head of the Economics Division, Israel Manufacturers’ Association.
The members of the finance committee largely praised Steinitz for his work, though many echoed Many’s critique, saying they were troubled by the persistent economic disparities in the country.
“I’m sorry we won’t continue to work together on the economic issue, but I intend to keep working on behalf of Israeli society from the opposition,” said Moshe Gafni, who chaired the committee, before vowing not to “abandon Israel’s citizens to the whims of the rich.”
Amir Peretz of Hatnua added that the government must “check how, despite all the impressive macro data, the ordinary citizen doesn’t feel the economic success. Perhaps there’s a problem with the distribution of resources, that the success doesn’t trickle down to the citizens.”
Steinitz responded: “The economic success does trickle down, even if it’s at a slow pace.”
Labor MKs Avishay Braverman and Erel Margalit took Steinitz to task over the biannual budget, with the latter calling it “a colossal failure.”
They blamed the budget for unexpectedly huge deficits, arguing that economic projections for revenues are far too imprecise two years ahead of time to accurately plan taxing and spending in order meet deficit targets.
Steinitz conceded that adjustments would be necessary to keep the budget working functionally.