"The only way to overcome deficits is by cutting the state budget. I did it, I proved this time after time, and at the same time cut taxes." Prime Minister Benjamin Netanyahu made this statement in interviews late last week.
First of all, civilian spending grew almost 20% during his term, while the structural budget deficit has already exceeded 4%. The biggest surprise was the phrase, "cutting the state budget." You won't find this phrase in the platforms of the political parties in the current election campaign.
Netanyahu is not only using it; he is taking pride in his past achievements in this area. Does he sense that what has been regarded as virtually indecent since the 2011 social protest is back in fashion?
In the interviews late last week, Netanyahu listed his economic achievements: some of them real, some of them unfounded. "Growth is at an all-time peak," Netanyahu told Rina Matzliah on Channel 12. "Unemployment is at an all-time low, tourism is at an all-time high… We did great things for small businesses."
Unemployment is indeed at a low point and tourism has hit a record high, but "Growth is at an all-time high"? There is nothing true about this. Growth in Israel is fading. Per capita growth in the past two years trails behind the US, the OECD average, and even countries in the aging and exhausted euro bloc. Those are the dry figures.
What about "We did great things for small businesses"? The media may have let this pass, but small business owners did not exactly feel that great things happened to them during the current government's term; if anything, the opposite is true.
A series of proposals by small and medium-sized businesses - accelerated depreciation, unemployment insurance for self-employed people, recognition of vehicle expenses, accident pay - were rejected in the Knesset by the coalition. At the same time, small and medium-sized businesses bore the added cost of a series of social measures: a shorter work week, longer maternity leave, and of course an increase in the minimum wage. What was good and important for employees cost small and medium-sized employers dearly.
What about suffocating bureaucracy? It is true that Netanyahu declared war on it. It is true that people in the Prime Minister's Office are trying to reduce, streamline, cut, and relieve. The result, however, has been failure for Netanyahu. In the government's current term, Israel fell from 36th to 49th place in the World Bank's ease of doing business index.
Beyond the achievements, however, people on their toes will notice something deeper - the prime minister is singing an old familiar melody. Mr. Economy wants to return to the helm he left to Mr. "0% VAT" Yair Lapid and Mr. "Narrowing Social Gaps" Moshe Kahlon. "I am capable, eager, and full of energy to continue the development of our free economy," Netanyahu told Ran Rahav and Sharon Gal on Channel 13. "A prime minister has to be capable of saying 'no' when necessary. I want to cut our taxes, cut our bureaucracy…"
"What will you do with a NIS 15 billion deficit," Gal asked. Netanyahu answered, "The only way to overcome deficits is to cut the state budget - I did it, I proved it time after time, while on the other hand, I cut tax rates. Give people a chance to work, to initiative."
The cuts that Netanyahu made as minister of finance in child allowances, support for single parents, and a long list of social budget items won praise from economists, but proved expensive when the Likud won only 12 seats in the elections. The social protest revealed the underside of that economic policy: income inequality rose to a record high, threatening the social fabric. In order to compensate for Netanyahu's tax cuts, the Ministry of Finance increased the indirect tax burden, thereby increasing the cost of living to an unbearable level.
Netanyahu has to recognize that what was right in 2003 is not necessarily right in 2019. Economists like Omer Moav and Avi Simhon will be happy to see income tax and corporate tax continue falling, but there are no less respectable economists, such as Karnit Flug, Manuel Trajtenberg, and Michel Strawczynski, who believe that after four years of cutting taxes, it is time to change direction. Taxes should rise.
Published by Globes, Israel business news - en.globes.co.il - on April 7, 2019
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