Lapid’s challenge

It is precisely at these times, when tough decisions must be made, that true leaders are tested. Will Lapid rise to the challenge?

Lapid speaking at the Knesset 370 (photo credit: Marc Israel Sellem/The Jerusalem Post)
Lapid speaking at the Knesset 370
(photo credit: Marc Israel Sellem/The Jerusalem Post)
There is an understandable desire on the part of politicians sensitive to public opinion to put off spending discipline until tomorrow. But then, dammit, tomorrow arrives and once again procrastination sets in.
In Europe, politicians are under increasing pressure from voters facing high unemployment and reduced government services to move away from “austerity measures” – also known as fiscal discipline – toward policies that “spur economic growth” – a euphemism for a lack of such discipline.
This week Enrico Letta, on his first visit to France as Italy’s prime minister, said European voters across the continent would “rebel” against leaders if they failed to resolve the economic ailments accompanying stalled growth.
The crisis-fighting strategy prescribed by leaders of EU countries with stronger economies – such as German Chancellor Angela Merkel – that call for painful economic measures like public spending cuts and tax increases is seen as the cause of the malaise, not its solution.
Meanwhile, in the US it was both Republicans’ and Democrats’ commitment to the irreconcilable demands of voters who want no spending cuts, no tax hikes and no deficits that precipitated a deadlock and the consequent Sequestration accident.
This anti-austerity trend has not passed over Israel. On Thursday, Finance Minister Yair Lapid proposed increasing the fiscal-deficit ceiling from 3 percent to 4.9% of GDP – or a whopping NIS 50 billion.
Lapid’s proposal was a complete surprise. Just last week he presented a long list of painful budget cuts and tax hikes that were designed to maintain fiscal discipline in accordance with the recommendations of Bank of Israel Gov. Stanley Fischer.
But this week, Lapid reneged, unwilling, apparently, to confront virulent opposition to his austerity measures.
Histadrut labor federation chairman Ofer Eini had threatened to call a general strike against a proposed freeze on public sector wage hikes that are slated to go into effect this year. The mayor of Eilat threatened to close down the city if certain tax reforms, such as the removal of Eilat’s duty-free status and exemption from value-added tax, went into effect.
Fiscal discipline will resume next year, announced Lapid, with a return to a deficit ceiling of 3% of GDP.
Lapid’s desire to procrastinate is understandable. The collapse of the Likud under the leadership of Binyamin Netanyahu in March 2006 is widely attributed to a backlash against Netanyahu’s neoconservative socioeconomic policies when he served as finance minister in Ariel Sharon’s government from 2003 to 2005. Though the economic plan initiated by Netanyahu that included deep cuts in welfare, and privatization and tax reforms, led to a sharp reduction in government debt, they also turned away many of the Likud’s traditional constituency.
In the election against Kadima, the Likud fell to a new low of just 12 Knesset seats. Clearly when it comes to fiscal matters, popularity contests are not won by politicians who play the responsible adult.
Nevertheless, by 2007 and 2008, when much of the world was reeling from economic crises, Netanyahu was vindicated. His policies were credited with helping the economy weather the downturn. In contrast, the US and the Europeans have still not recovered.
Tellingly, politicians such as Labor Party head and professed social democrat Shelly Yacimovich, who advocates the sort of irresponsible fiscal behavior that has gotten too many European countries into trouble, praised Lapid’s decision to raise the deficit ceiling.
In contrast, those more well-grounded in economy theory such as former Bank of Israel governor David Klein warned during an interview on Thursday on Army Radio of a “dangerous” “slippery slope.”
“You can always say ‘Okay, this is just for one year, next year I will take control of things again... but these are the sorts of promises we have heard in the past. This is not an auspicious beginning [for Lapid],” he said.
Klein is normally reserved and careful with his words; Lapid should heed this trenchant warning.
Politicians’ desire to put off spending discipline until tomorrow is perfectly understandable. Nobody wants to be the budget Grinch, particularly a politician with an eye toward getting reelected. But it is precisely at these times, when tough decisions must be made, that true leaders are tested. Will Lapid rise to the challenge?