It can be assumed that IDF Chief-of-Staff Lt.-Gen. Benny Ganz realized about ten minutes after the news stations published their election exit polls at 10 pm that he will have to deal with a smaller defense budget in the second half of the year. We can suppose that the figure NIS 5 billion is in his thoughts, and that he has added a line in his diary to make an urgent call to his financial adviser to figure out what to do.
It is hard to imagine that Ganz, or other defense officials, will be surprised by what they will hear from Prime Minister Benjamin Netanyahu in the coming days. When it becomes necessary to prove to the political party which sees itself as the representative of the middle class that it is possible to draw up a joint economic plan, the party that will have to provide the financing is the only one with the means: the IDF.
It can be assumed that the Ministry of Finance's Budget Department staff realized about ten minutes after the news stations published their election exit polls that they will, with deep regret, have to pull the Trajtenberg Report out of their drawers before drawing up the 2013 budget. Everything written in the report that has not yet been implemented will be put back on the negotiating table for exactly the same reason that the defense budget will be cut. The new government will have to show that it is working for the middle class, which means, for example, reviewing the criteria for affordable housing to bring back fulfilling the earnings criterion to the equation.
The question is how to combine these measures with all the other measures which have already been prepared for the 2013 budget. In principle, some of the measures will be acceptable to Yair Lapid's Yesh Atid, such as cutting public sector salaries on the assumption that Histadrut chairman Ofer Eini will close a deal. Other measures are much more problematic, such as the plan to raise VAT.
Settlers and haredim have no choice
The negotiations between Netanyahu and Lapid will not only be about a coalition agreement and divvying up portfolios, but also about the 2013 budget. Things will be cut there, assuming that Lapid knows how to translate his slogans into budget items and cabinet decisions. The guiding principle will be to justify the new coalition's existence with a budget. This removes higher university tuition and excise on gasoline from the equation. It also means reducing the purchase tax where possible to show a real intent to lower the high cost of living. As for VAT, no compromise seems likely now. A VAT hike would cost Lapid too much prestige and some people are already thinking about how much to save in other items.
But except for VAT, in principle, Netanyahu can relax about the tax side in the new budget. It's true that Yesh Atid is unenthusiastic about indirect taxes, but Lapid personally has not sounded like a man who would man the barricades and demand a direct tax hike on the highest income-earners. This means moving the 2013 budget's center of balance to the spending side, beginning with various welfare payments, as well as defense cuts and cutting public sector salaries.
Therefore, Budget Department officials can relax a bit, so long as the coalition negotiations don’t run into trouble. Until a new government is formed, they will reconsider all the proposed spending cuts. The condition will be the possibility of making them at the expense of all the constituents who did not vote for Yesh Lapid and gave it 19 Knesset seats. It will be much easier for Netanyahu to strike deals with the haredim (ultra-orthodox) and the settlers, because they will have no choice but to agree.
Bye-bye Steinitz
It can be assumed that Yuval Steinitz realized about ten minutes after the news stations published their election exit polls that he will not be Israel's finance minister in the new government. First, in the eyes of the middle class, he is the source of most of its troubles. Second, by ousting him from the Ministry of Finance, Netanyahu can imply who he blames from the Likud's great failure in the elections. Maybe he hopes that giving the finance portfolio to Yisrael Beytenu will placate the friends of Avigdor Liberman who suddenly also want to be seen as the champions of the middle class.
All this sounds well and good if we're talking about some kind of political arrangement. But the budget is not just about political arrangements, and it requires extensive knowledge, experience, and understanding in drawing up a state budget. None of Lapid's people have spent a minute of their lives on a Knesset committee, although some of them have experience in writing and managing budgets. The new finance minister, even if he is a businessman or successful deal-maker, will have to learn about the importance of the steps immediately upon taking office.
Ultimately, when the budget is submitted and passed by the Knesset, it will be very different form the budget planned just a few weeks ago. The man who will direct things will be Netanyahu. The question is what will happen if Lapid's people discover after a few months that in the reality of an economic slowdown, rising unemployment, and intensifying uncertainty they become the targets of criticism and anger by the voters who sent them to the Knesset. At that point, the finance minister will tell them that it's their problem, not his.
Published by Globes [online], Israel business news - www.globes-online.com - on January 23, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013