The man with the purse strings

Yair Lapid campaigned to redefine Israel’s priorities from security to domestic. The finance minister sat down with the ‘Post’ to discuss the fight to prevent an economic collapse, unusual allies and why the peace process is good for the economy At the time of last year’s The Jerusalem Post Diplomatic Conference, Yair Lapid was just a political candidate, crisscrossing the country asking where Isr

Yair Lapid campaigned to redefine Israel’s priorities from security to domestic. The finance minister sat down with the ‘Post’ to discuss the fight to prevent an economic collapse, unusual allies and why the peace process is good for the economy At the time of last year’s The Jerusalem Post Diplomatic Conference, Yair Lapid was just a political candidate, crisscrossing the country asking where Israel’s money was going.
A year later, as finance minister, he is in charge of every shekel, and in his election campaign he redefined the country’s priorities away from security concerns toward domestic issues.
Lapid then leveraged his achievement in the election to force Yair Lapid Prime Minister Binyamin Netanyahu to form a governing coalition without the ultra-Orthodox and obtain the critically important, yet not so coveted, title of finance minister.
Time magazine placed Lapid on its 100 Most Influential People in the world list, and he topped The Jerusalem Post’s 50 most influential Jews, after not even making the list a year earlier.
Lapid holds the key to Netanyahu’s government’s endurance and he intends to take advantage of that status to ensure that the peace process with the Palestinian Authority advances.
He is a member of the security cabinet and the ministerial forum that oversees talks with the PA.
But since he became the man in charge of the country’s finances, it has not been smooth sailing for Lapid. He had to make extensive budget cuts – at least temporarily harming his middle- class constituency – and endure a difficult process of choosing a Bank of Israel governor.
He has also faced a slew of economic challenges as the nation continues to deal with high levels of poverty and inequality. The Histadrut labor federation has proven to be a resilient foil to proposed reforms that Lapid hopes will bring down the high cost of living. The country’s sky-rocketing housing prices, which fueled the 2011 social protests whose sentiments fueled Lapid’s election victory, have remained stubbornly high.
The Jerusalem Post sat down with Lapid recently to discuss some of these pressing issues.
You said in an infamous interview after you led your party to an impressive 19 Knesset seats that you believed you would be Israel’s next prime minister. Do you still think so? I think I should talk about this less.
I’ve never hidden the fact that coming into politics I thought of going all the way, but I’m in no hurry. This government has plenty of juice. It can last all four years. So far I did only the difficult, painful things a politician hates doing. I will need some time to gain political profit from the things we are doing now. So yes, but I am not in a hurry and not obsessed with it.
Do you regret accepting the Finance portfolio? I don’t regret taking this job for a second. I entered politics to fight for Israel’s middle class. What better place than the Finance Ministry? But I didn’t think my first fight would be to prevent an economic collapse and I didn’t know what inheritance I would receive [from my predecessor, Yuval Steinitz].
Please respond to reports that Defense Minister Moshe Ya’alon said privately that he would prevent the full implementation of the Peri Committee recommendations on drafting yeshiva students.
The law is the law, and everyone will follow it. Ya’alon voted for it in the cabinet and the Knesset. He was part of the Peri Committee. We built the law completely in legal cement. If we hadn’t, when the old Tal Committee recommendations were disqualified by the Supreme Court, everyone would have had to be drafted at 18.
Our bill makes the process irreversible.
There might be those thinking of their future coalitions, but there is no going back from this.
Do you see your controversial bond with Bayit Yehudi head Naftali Bennett continuing? I don’t see why not. Naftali is an ally and a friend. We disagree on the peace process, but he says as long as we haven’t started evacuating settlements, he can stay in the coalition.
We still talk almost every day.
Are you concerned that the handling of the crisis with the EU indicates that expanding settlements is a higher priority for Netanyahu’s government than expanding the economy? Since I joined the government, no new settlement has been built. Israeli citizens should be supported. The settlers know that I think that in a future agreement they will be evacuated. We are working tirelessly to explain to the Europeans that what they are doing is harming the peace process, not helping it. They are strengthening Palestinian extremists who believe that it is best not to do anything on the peace process. But it is now looking like the EU’s Horizon Program [a project of 70 billion euros for research and development to create new growth and jobs from 2014 to 2020] will include Israel after all.
Do you believe a diplomatic agreement can emerge from the current peace process? If this peace process won’t work, we should start again and again. It may be Churchillian, and if not, it should be: Never, never, never give up. As I said in the campaign, we are seeking an honest divorce from the Palestinians, not a wedding. We [in the Yesh Atid party] will push the process forward tirelessly. Ministers get reports directly from [Israel’s chief negotiator and Justice Minister] Tzipi Livni. I won’t get into details of what is happening in the talks, because that would be irresponsible. I would rather have a peace process than a headline.
Would you support reaching an interim agreement with the Palestinians? The conflict is not about borders, Jerusalem, security arrangements, settlements, or Palestinian terror. It’s about hatred, pain, mistrust and bad memories. We need a solution that concludes the ability to go through these emotions. I don’t know if interim state is the name for it, but time is one of the ingredients we need if we want wounds to heal. Let’s leave it vague for now. I’m not going to jeopardize the process to be fancied by somebody or get invited to the right caucus. It’s too important to me.
You told the ‘Post’ last year that you were skeptical that Netanyahu could stop Iran’s nuclearization. 13 diplomatic conference Yair Lapid Are you still skeptical? What is happening with Iran is interesting.
There is a new vocabulary coming from there that we should look at cautiously. One of Israel’s first priorities is preventing a nuclear Iran.
We had an Iranian president with a vocabulary of Holocaust denial so [the change] is refreshing. It’s a good thing to have someone who speaks differently. We need to make sure that this is not just new camouflage to the old plan [of obtaining a military nuclear capability].
How would you rate the world’s handling of the Arab Spring? It is too early to tell what will happen with Syria and whether the Russian agreement is doable. A majority of Israelis have mixed feelings about the deal, me included. A peaceful solution is always better. There can be no outsourcing of Israel’s security. It must be in our hands. The world can help but can’t replace us. If the deal ends Syria’s chemical weapons capability, the world will be better than it was before.
What do you think about the world not stopping the killing of the 100,000 Syrians who died from conventional weapons? It’s an interesting moral question how the world has ignored them. In two years, more people [have] died in Syria than in the entire history of the Arab-Israel conflict. Nevertheless, the overwhelming majority of the resolutions in the UN Human Rights Council were about Israel.
Are you concerned that if peace talks break down there will be another intifada that could harm the economy? Fears – economically and otherwise – are never a reason to do nothing.
We should overcome fears. But the worst point economically was when the peace process was stuck. This is being taken into consideration.
Where do you see the peace process and the economy four years from now? Economy and peace must unite and they will. Already a year and half from now, the economy will be better because growth will be up and the deficit down. We have a train going in the right direction. I’m happy because optimism is part of the economy.
Economics is a social science. If people understand the economy is going the right way, it will happen faster. In 1993, after the Oslo process began, international companies came in and the economy was boosted.
If optimism has a twin sister it would be hope. I’m optimistic about the economy and hopeful about the peace process.
Moving to the economy, why has it taken so long to select a new Bank of Israel governor? Three candidates have already been approved by the Turkel Committee responsible for vetting them.
We had, as you well know, a streak of bad luck with the first two candidates we chose; and by saying a streak of bad luck I’m trying not to not have to say “farce.” A lot of what is bad in the Israeli discourse came out through this. I understand the end result of what happened; I don’t understand the amount of bad blood and even evil that came through this.
The prime minister has invented a new English term called “Turkelizing,” so we decided to “Turkelize” them before instead of after, and we did that, and they finished a few days ago. We’re going to take a few days and think about it and contemplate and make up our minds. If we were doing it immediately, you’d be sitting here and saying, “Why aren’t you going through the proper process of thinking and doing it so fast?” The deficit is coming in well below the rather high target of 4.65 percent for this year, even before many tax changes have come into effect.
In increasing VAT , changing cigarette, beer and alcohol taxes, some say what you did was too aggressive.
Will you lower those taxes? I said from day one, if economics will allow us in the future – meaning this is not something we can look into because the details now are very vague and changing daily – my goal always was to lower taxes if possible.
Unfortunately, we have to be responsible and we have to make sure that the markets are stable, and then we’ll look at this next year.
Did the GDP formula change [which will help the government hit deficit targets] take you by surprise? Why wasn’t it taken into account during the budget process? The thing that took me by surprise was the fact that it was misinterpreted badly. We’re facing a bigger problem in many ways because now the GDP is higher mathematically, at least, but the income per capita is the same, so the gaps are bigger. Mathematically, the Israeli middle class, who is suffering enough, feels that whatever growth the country is having is not coming to it.
Until two weeks ago, I said growth in the last 10 years of GDP was 24% and the raise for real payment to people in salaries was less than 2%, so it’s no wonder the middle class is upset.
Now it’s even less.
You’ve made certain cost-of-living reforms central parts of your policy.
But one of the central problems in Israel is that too many people earn low incomes. High levels of income inequality pull up prices for the lower- income part of the population.
What do you think is behind Israel’s massive inequality, and how do you think it can be fixed? I think there’s a theorem that didn’t work, which is let the rich get richer and money will trickle down all the way down to the poorest. I don’t think this is true.
I think what you should do is support the middle class massively and then it will trickle down. 14 diplomatic conference Yair Lapid We should not be an ultra-rich-oriented economy, we should be a middle- class-oriented economy. The idea is to help the middle class as much as you can with tax reforms, lowering the cost of living, all those reforms you mentioned.
The second way of helping the poorest is what we’re doing right now which is moving from a culture of allowance to a culture of work. You do this through education – we’ve opened professional high schools, community colleges, where people can learn IT and things like that. You take money from allowances and put it into education and plans to put people to work.
The Finance Ministry reported that in 2010, Israel’s four biggest companies received NIS 4 billion in tax benefits. Part of the problem in changing it is competing with other tax regimes. But in July, the OECD released an Action Plan on Base Erosion and Profit Shifting to help fight aggressive tax planning. Will you push to adopt its recommendations? I discussed it with [OECD Secretary- General] Angel Gurr?a when we met in Paris three months ago and I think this whole plan will be successful if all developed countries will be involved. Otherwise you’ll have a few tax shelters that will be extremely rich and then everyone else will be screwed. So Israel, as much as we appreciate ourselves, we’re a small country in a huge game. Of course we will go along because we suffer as much as any other country from the way big companies and big syndicates are wiring the money from one place to another.
It’s a global problem, it’s one of the unexpected results of the global revolution that, as [American economist] Joseph Stiglitz so coherently suggested years ago, will make countries less relevant towards economies. Now since there’s always a pendulum effect, countries are back, and taking care of what was neglected for too long.
What we’re trying to do now is to be tougher and quicker on our feet in terms of black markets and tax planning, and in order to do this you have to be well-connected globally, and the OECD is going to be the key player on this.
Israel has a productivity problem.
The workers here tend to work longer hours but produce less than their counterparts abroad. Why do you think that is, and what can be done? If you look at the numbers a bit deeper, in hi-tech the productivity here is very good. It’s the traditional industries in which we have a problem.
Nobody seems to have a complete answer to the question why. It has to do with education, infrastructure. The size of the black economy we have here – there are many elements. The solution is better education and trying to move as many people as we can from traditional industries into hi-tech industries.
They don’t all have to be start-ups...
But we should be an innovation-based economy, this is crucial to our future, and the more people you move from traditional industry to more innovative industries, the more productivity you have, so this is a solution.
One of the main reasons cited for low productivity is government red tape and Israel’s rankings in the international arena of “ease of doing business” keeps falling. What reforms are you making? We’ve been working with the Prime Minister’s Office on a big deregulation plan. What we need to do is take as many pages out from the regulation books as possible. This is now a known factor in terms of the problems the Israeli economy has, and we’re just going to be very aggressive about this. Part of the red tape is because government is too big.
Let me remind you, the last government had 35 ministers, now we have only 21 ministers and that’s courtesy of Yesh Atid. The next government will have only 19, and that’s not just ministers, but ministries – now we have some ministers that administer two or three. This is a huge step, and this was one of our primary demands during the coalition negotiations. So cutting down on government and aggressive deregulation will have to have results in the near future.
Do you see us having Sundays off in Israel any time soon? That is one of those things everyone enjoys contemplating, but there are more immediate problems that have to be dealt with. I think it’s a good idea, by the way, that the stock market will work Friday instead of Sunday.