Netanyahu's budget maneuvers - economically absurd, socially mad

MIDDLE ISRAEL: The former governor of the Bank of Israel represented truth, warning that Benjamin Netanyahu’s budgetary maneuvering is economically ruinous.

PRIME MINISTER Benjamin Netanyahu and then-Bank of Israel governor Jacob Frenkel at a press conference in 2013.  (photo credit: MIRIAM ALSTER/FLASH90)
PRIME MINISTER Benjamin Netanyahu and then-Bank of Israel governor Jacob Frenkel at a press conference in 2013.
(photo credit: MIRIAM ALSTER/FLASH90)
‘The voice is the voice of Jacob, but the hands are the hands of Esau,” said the biblical Isaac as his younger son used his elderly father’s blindness to impersonate his older brother and steal his blessing.
This week the voice of Jacob resounded again, only this Jacob – Frenkel, the former governor of the Bank of Israel – represented truth, warning that Benjamin Netanyahu’s budgetary maneuvering is economically ruinous. That’s besides its being also politically futile and socially mad.
THE ISSUE over which Netanyahu and his deputy, Benny Gantz, are sparring – whether the next budget will be for one or two years – seems technical. It isn’t.
Originally, the biennial budget was actually the Likud’s idea, passed in 2009 by then-finance minister Yuval Steinitz as a way to reduce political pressure on the economy. It was a fine idea that indeed worked. That is why the coalition agreement’s commitment to a biennial budget was accepted as a plausible response to the pandemic’s economic results.
Since then, alas, Netanyahu has changed his mind, and now demands a short-term budget. His “arguments” are economic. “A biennial budget,” he told the Likud’s Knesset faction, “will mean very meaningful cutbacks. This means,” he now interpreted his forecast, “economic decrees, because you must make the numbers add up, and that’s exactly the opposite of what must be done.”
This is economic alchemy. What, in a short-term budget the numbers don’t have to add up? And does a long-term budget forbid stimulus spending?
This is one big lie, folded in the very term “one-year budget.” It won’t be for a year, but for hardly four months, as it would pass in late August, just before the High Holy Days. Equally deceitful is the claim that there is no time to prepare a long-term budget. The Budget Department has already drafted it.
Alarmed by this economic dereliction, the 77-year-old Frenkel wrote in a rare opinion article in the business daily Calcalist that “the country’s economic leadership must create certainty.” The government’s “underperformance” of its own decisions, coupled with its frequent changes of policy, “have hurt the public’s faith in government policy, and intensified uncertainty,” he wrote.
Famous for his ability to explain complicated economics to economic ignoramuses, Frenkel now explained that uncertainty is in itself an economic liability, because it “suppresses investments, hurts employment, obstructs the economy’s functioning, and impedes its recovery.”
This is besides an early election’s financial price, and besides the social price of imposing on this already nerve-racked society yet another political war, the fourth in less than two years, and not because of a political constraint – there isn’t any – but because of the prime minister’s personal needs.
FRENKEL IS not one of Netanyahu’s many enemies. The two worked well together during his first premiership, in what was the most harmonious relationship Frenkel had with any of the five prime ministers who checkered an illustrious, nine-year governorship in which inflation died and the shekel matured. The pair harmonized because of their shared American education, cosmopolitan culture, and monetarist faith.
This history is relevant now because it means that Frenkel, besides his professional credentials, is politically impartial. He is not out to unseat Netanyahu. He is out to defend the economy that his former boss is debilitating.
So are 14 other senior economists, among them three Israel Prize laureates, who joined Frenkel’s call for the passage of a longer-term budget, including the IDC’s Omer Moav, who was an adviser for Netanyahu’s government in 2009-2013, and the Hebrew University’s Eytan Sheshinski, who played a key role in formulating the gas-mining regulation that Netanyahu’s government adopted.
How can these experts’ plea be ignored?
Intensifying economic uncertainty will prolong and redouble the economic crisis. For the past 35 years Israel attracted foreign investments not only because of its industrial excellence, but also because of its economically prudent leadership.
Investors knew Israeli leaders – certainly Netanyahu – were fiscally responsible and institutionally disciplined. Israel’s deficits and debts, once among the world’s deepest, became among the lowest in the world, while its per capita product, exports, and foreign currency reserves became among the highest in the world.
That is how Israel’s credit ratings climbed as high as A1 (Moody’s) and A+ (Fitch). Now Netanyahu’s ploy threatens this hard-earned status, whose significance is not in its flattery, but in its impact on the pricing of credit Israel borrows abroad.
If these ratings decline, as they very much might if Netanyahu’s budgetary circus does not stop, then we the taxpayers will have to pay more when the government will borrow the billions that financing the corona economy’s deficits will inevitably demand.
NETANYAHU’S REAL motivation in all this is transparent as a sheet of glass. He wants another election.
While economically absurd, the prospect is politically feasible, because the coalition agreement says a budget must pass by 25 August, otherwise the government falls, and an election is triggered. Netanyahu knows Gantz is committed to the economists’ biennial budget. That’s why he is maneuvering Gantz into an unbridgeable dispute that will cause the young corona government’s death.
A new election, Netanyahu hopes, will undo his legal entanglement, because he will win big and restore the right-wing coalition with which he will pass legislation that will delay his trial indefinitely.
This won’t happen. Netanyahu’s ultra-Orthodox partners are signaling they won’t allow an early election. Politically shrewd and socially attentive, they understand their longtime partner’s time is running out.
Even so, fueled by a spouse who reportedly vetoed the idea of presidential pardon for political retirement; and agitated by a son who spends his days inciting Israelis against Israelis, the prime minister is out to consciously harm thousands of economically devastated households in order to serve himself. It’s a unique combination of saga, tragedy and farce, and its last act is well under way.
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The writer’s best-selling Mitz’ad Ha’ivelet Hayehudi (The Jewish March of Folly, Yediot Sfarim, 2019) is a revisionist history of the Jewish people’s leadership from antiquity to modernity.