No money left for Israel's citizens
Op-ed: Netanyahu-Lapid budget deal will secure Israel's last place among OECD members in terms of funds allotted to economic and social development for many more years.
It really didn't take an economic-political forecaster to know how the budget dispute
between Finance Minister Yair Lapid and Prime Minister Benjamin Netanyahu (and Defense Minister Moshe Ya'alon) would end: The Defense Ministry will receive half of what it asked for in advance and an unwritten promise to get billions more throughout the year, the civilian ministries will receive much less than what they asked for and hoped for – and the rest will be covered by the increased deficit.
This is the exact compromise reached that the prime minister, finance minister and other ministers reached over the weekend. Bank of Israel Governor Karnit Flug, as one could understand from her recent comments, is quite troubled by it. So am I.
The math is simple. According to what is known as a "budget rule," a law in the statute book which includes a certain calculation formula, the government's expenses could grow next year by some NIS 8 billion (about $2.2 billion).
The growth in the tax collection forecast is much lower – not just because of the zero VAT on new apartments, but mainly because of the slowdown in growth – and so at the starting point the Treasury already faced the following question: A higher deficit or more taxes?
Lapid decided, unequivocally, in favor of a higher deficit. He presented Netanyahu with the initial framework for the 2015 budget, which included an addition of NIS 5.5 billion to civilian-social ministries, an addition of NIS 2.5 billion to the Defense Ministry, and increasing the deficit ceiling to 3.2% of the gross domestic product.
That's nice. But the Defense Ministry demanded an addition of about NIS 11 billion. What can they do? After a short show of force, they do the most expected and standard thing: Raise the deficit "a bit more" and take "a bit more" from the budgets allotted to economic and social development.
We are already talking about a deficit amounting to 3.4% of the GDP (about NIS 40 billion in 2015 prices), an addition of NIS 6 billion to the defense budget and a tiny addition of only NIS 2 billion addition to all civilian ministries. The government will allot about 0.15% of the annual GDP next year to increase its spending on education, health, welfare, infrastructures and growth engines. That's less than a statistical error. It means an additional reduction in the share of public-civilian spending in our GDP cake.
For years, Israel has been ranked last among developed countries which are members of the Organization for Economic Cooperation and Development (OECD) in terms of the share of public and civilian budgets in the economy. This is an inappropriate last place for a country whose poverty rates are among the highest in the West.
Now, as a result of the budget arrangement taking shape for 2015, our last place will be secured for many more years. This is the exact outcome the Bank of Israel governor warned about when she disagreed with the sacred principle of "not raising taxes."
The government, any government, has three ways of funding a war: It can either take more taxes from the citizens, cut the services it offers citizens, or ask for an increased loan from its citizens and raises the public debt. Netanyahu and Lapid chose the ways of debts and cuts together.
So there is no point in discussing which one of them overpowered the other. That's not important. The important fact is that politics, once again, overpowered society.
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