Israel Elections: Politicians identify cost of living as key issue

POLITICAL AFFAIRS: Heading toward November, the most pressing issue for many Israelis is the high cost of living – and politicians are paying attention.

 SHOPPERS AT A Rami Levy supermarket in Modi’in last week. Will prices be a priority for voters in November? (photo credit: YOSSI ALONI/FLASH90)
SHOPPERS AT A Rami Levy supermarket in Modi’in last week. Will prices be a priority for voters in November?
(photo credit: YOSSI ALONI/FLASH90)

It begins with a visit to a supermarket in Jerusalem’s Malha Mall on July 3. Uplifting music grows gradually louder in the background. Opposition leader Benjamin Netanyahu stands next to an apple stand.

“We will lower prices and help you,” he says to the shoppers gathered around him. “Mortgages are up! The gas – have you heard? We will also lower [the price of] gas. Do you want them to go down?” Netanyahu asks. “Yes!” the crowd answers in concert. “So vote for us!” the former prime minister answers with a satisfactory smile.

Scene number two takes place in a bakery. The uplifting music is now at a crescendo. Bibi begins a kind of chant: “The [price of] bread – is rising. The milk – is rising. The flour – is rising. The fruits and vegetables – rising. You know what? We will return to power and lower the prices,” he says.

Scene number three. It is now July 5. The setting – a gas station.

“I had to come myself to a gas station to see the prices with my own eyes. It is unbelievable. Enormous price hikes... mortgages, food, bread, water – everything. And instead of doing something to stop this... Yair Lapid... sent the director-general of his office to the Muslim Brotherhood’s Shura Council and said to them, ‘You have an open check.’ He is giving away billions of your money, citizens of Israel, to the Muslim Brotherhood and the Joint List.”

Benjamin Netanyahu

“I had to come myself to a gas station to see the prices with my own eyes. It is unbelievable. Enormous price hikes... mortgages, food, bread, water – everything,” says Netanyahu.

“And instead of doing something to stop this... Yair Lapid... sent the director-general of his office to the Muslim Brotherhood’s Shura Council and said to them, ‘You have an open check.’ He is giving away billions of your money, citizens of Israel, to the Muslim Brotherhood and the Joint List.

 Milk for sale at the Rami Levy supermarket in Jerusalem on July 17, 2022.  (credit: YONATAN SINDEL/FLASH90) Milk for sale at the Rami Levy supermarket in Jerusalem on July 17, 2022. (credit: YONATAN SINDEL/FLASH90)

“In three global economic crises, we extracted Israel from the crises and raised it upwards and upwards. I can do this again, but my friends and I need your votes. Vote for Likud, and we will lower the prices.”

"Mr. Security" focuses on the economy

Netanyahu, who is often referred to as “Mr. Security,” chose instead to focus at the start of his campaign on the high cost of living.

This was not a random decision. A poll carried out by the Israel Democracy Institute at the end of May found that the most pressing issue for Israelis in the short term was the high cost of living, with 34% listing it as the chief concern. The security situation came in a distant second, at 23%, and in third place was another price-related issue, the cost of housing.

Finance Minister and Yisrael Beytenu head Avigdor Liberman and others responded in kind. Liberman’s campaign has so far also focused almost solely on what he sees as the government’s economic achievements.

“A lesson in facts. Benjamin Netanyahu, don’t say you didn’t know or didn’t see,” Liberman tweeted on Sunday.

“Electricity prices broke records during your tenure and reached... 18.5% higher than the price of electricity today. Gas prices in your tenure broke records and reached NIS 8.25 per liter; 2.1% higher than the price of gas today. And this is before the reduction in the excise tax that I am leading, which will come into effect at the beginning of August.

“Real estate rose by 116.4% under your leadership. In one year, we broke all of Israel’s construction records and brought approximately 70,000 construction starts and some 80,000 construction permits. And if you are already insisting on discussing tax raises during your tenure, then VAT rose to 18% and the capital gains tax rose to 25%,” Liberman wrote.

Global price hikes

GLOBAL CRISES are creating price hikes all over the world. In Israel, the rise is one of the most moderate, only after Japan and Switzerland, he wrote.

“The deficit you left us stood at 10.5% and unemployment at 9.8%. Unlike you, due to a balanced and responsible policy, I wiped out the deficit and shrank unemployment almost to zero. We passed the reform on imports and advanced competition in the Israeli economy, everything you failed in doing for 12 years.”

“Furthermore,” Liberman continued, “in the last year, we gave some NIS 11 billion in grants and raises to some 2.4 million Israelis. These included, among others, IDF soldiers, pensioners, Holocaust survivors, the handicapped, social workers, those who receive income supplements, parents of children in elementary school, low-wage workers and young working families.

“Bibi, you are welcome to continue spreading slogans, lying and inciting, but one cannot argue with the facts,” he concluded.

Prime Minister Lapid has also weighed in. In a video address to the Channel 13 News National Convention, Lapid spoke about both lowering the high cost of living and of his vision for Israel’s economy – namely, to reach 1,000,000 workers in hi-tech.

“The high cost of living is weighing on an entire generation,” Lapid said. “[Israel] will not be a rich country with citizens who are struggling to pay their bills.”

Lapid praised the government’s decision to bring two new supermarket chains to Israel – French supermarket giant Carrefour as well as Netherlands-based retail chain SPAR.

“Whoever raises prices may wake up in the morning and find that he has competition that he did not expect. Israel has the potential to be one of the top ten most successful countries in the world. We must and can lower the high-cost living, and must and can reach 1,000,000 Israelis in hi-tech,” he said.

PRICES ARE, in fact, on the rise. Israel’s Consumer Price Index rose by 0.4% in June and by 4.4% in the past year. Electricity is expected to rise by over 8.6% beginning in August, the hottest month of the year. Housing prices rose by 0.7% in the month of June alone and by nearly 16% over the past year, and gasoline has passed the NIS 8 per liter mark. The price of bread is expected to rise some 20% by the end of the year, and the list goes on.

But June also saw an 8.5% drop in the prices of fruit and vegetables. Gas prices will drop below the NIS 8 mark starting in August, and the 8.6% rise in electricity is far lower than the original intent to increase it by 16%. The increase in bread prices is also lower than the original 36% rise.

Indeed, since the election was announced on June 20, two narratives have emerged about the state of the Israeli economy and the current government’s achievements.

The first, which is being spearheaded by the Likud and Shas, is that the government flopped. While some of the price hikes are due to international events, including disrupted supply routes caused by the COVID-19 pandemic and the war in Ukraine, the government did not do nearly enough to combat the rising prices in nearly every sector.

Furthermore, the government slapped specific taxes that hurt the poor, including taxes on plasticware and soft drinks. There was also an attempt by Liberman to change the criteria for government subsidies on childcare so that only families with two working parents would be eligible. The High Court of Justice postponed this measure until the beginning of the next school year, ruling that Liberman had not given haredi families enough time to prepare for the change.

In Shas MK Michael Malkieli’s words, “The government’s economic policy cannot be even called policy. All it was was an attempt to distance Netanyahu, to survive, and to exact revenge on the haredi sector. The situation now is terrible. People are turning off the electricity in their refrigerators because they cannot afford it.”

The criticism also came from the Left. MK Naama Lazimi (Labor) lashed out at Liberman over priding himself in decreasing the rise in electricity costs.

“More from the creators of ‘the prices on rent rose only by 1.5%,’ Finance Minister Liberman is presenting politics that are disconnected from reality,” Lazimi said. “How is it that the person who is responsible for the most important ministry is deaf to the cries of the public that cannot pay its bills? Instead of priding himself in the government’s zero deficit that is not trickling down to the public, it is time to advance reforms and policies that will handle the price hikes,” she said.

The second narrative is vastly different. While prices did indeed rise in the past year, this narrative says that the situation in Israel is among the best in the developed countries; Israel’s pre-pandemic high cost of living are rooted in Netanyahu’s policies during the past decade; and not only did the government weather the global crisis exceptionally well, it succeeded in passing measures that were not dealt with in years and are expected to affect the high cost of living. These included reforms of unnecessary standards for imported goods, lowering tariffs on an array of fruits and vegetables and reform of the kashrut supervisory system, all intended to increase competition and lower prices.

The high cost of living is receiving more attention than it did in any of the previous four elections in the current cycle, and the campaigns have picked up on this. Both sides are speaking, posting and tweeting about the issue, and it may remain a significant issue as the election nears. 

Which narrative is correct?

THE CORRECT ANSWER is neither, according to Prof. Dan Ben-David, head of the Shoresh Institution for Socioeconomic Research and an economist at Tel Aviv University.

“First of all, there’s a need to distinguish between high prices and inflation,” Ben-David noted. “Inflation reflects the increase in prices. Israel has indeed experienced higher inflation. In other words, [greater] increases in prices this past year than in recent years. But that has to do primarily with what happened abroad, and has very little to do with us.

“I don’t think it’s the government’s fault that we have higher inflation, but this government is also not the reason that we’re below other countries. I don’t think we have that much control either way, not to make it worse and not to make it better within one year.”

The real problem is that the prices were high to begin with, Ben-David argues. This is something governments do have control over, but it is a long-term phenomenon – longer even than Netanyahu’s entire tenure. It began in the 1970s, and no one has done enough since then to fix it.

“The big change in Israel occurred after the Yom Kippur War. Our national priorities changed from one end to the other. If you look at healthcare, the number of beds per capita remained constant until 1977, and since then it’s been in a free fall. We have some of the most congested hospitals in the world. If you compare us to the G-7, the gap between the G-7 and Israel rose nearly fourfold since the 1970s in investment in higher education. I can take you one field after another. The big changes, the shifted national priorities occurred in the 70s, and the problem is that it hasn’t shifted back,” he said.

The trajectory of the hi-tech sector has been phenomenal, but it is still a small percentage of the Israeli workforce, Ben David noted.

“The problem is the fact that we’ve fallen further and further behind steadily for over four decades. I think the relevant question is who has changed this? And no one’s really changed it. It didn’t change when Netanyahu came into power and during his 12 years of power.”

One of the key issues is a decrease in productivity. This stems from a growing number of Israeli citizens, especially in the rapidly growing haredi population, who are not joining the workforce. This begins with education – without it, haredim cannot acquire skills that are necessary in the 21st century. This is something the current government has begun to change, Ben David said. He cited Liberman’s attempt to change the criteria for subsidized childcare as an example since it would force both haredi parents to work. But this is a drop in the bucket, according to Ben-David.

“Since the 1970s, the haredim were never in any coalition, but ever since, they became pretty much the kingmakers in nearly every coalition, because the Right wing doesn’t want to sit with the Left wing and the Left wing doesn’t want to sit with the right wing.

“Give them whatever they want and you basically mortgage their future in ours for political expediency today,” Ben David argued. “As long as we keep funding this, it’s something that will bring them down and bring us down together with them.

“We need to have a government that can basically bring Right wing, Left wing, religious, secular, Arab, and Jew together and start working on saving the Titanic instead of continuing to fight over the placement of chairs on the deck.”

This problem is not just an economic one. It is relevant to Israeli voters who almost always put national security as their first priority, Ben David said.

“The things that we’re talking about here are not Right wing or Left wing and have nothing to do with whether you’re an Arab or Jewish, religious or not. These are things that you can really reach an agreement on amongst most Israelis because it’s about the future of Israel. Will it be or not be?

“If over half the children are getting a Third World education, and they belong to the fastest growing parts of the population, they’re not going to be able to maintain a first-world economy. And that means not only that we won’t have first-world healthcare or first-world welfare, but we also won’t have a first-world army. That means that Israel will not become a third world country - it just won’t be. If we can’t defend ourselves in this neighborhood, that’s national security,” he said.

In America, James Carville’s famous slogan was, “It’s the economy, stupid.” In Israel, it’s always been national security, and this is an acute national-security issue, Ben David noted.

In other words, as long as Israeli politicians continue focusing on scoring short-term victories or launching political attacks over focusing on the price of gas, electricity, plasticware or soft drinks, the macroeconomic situation will get worse. This will eventually return to bite us – not just economically, but in the very existence of the State of Israel. •