Prime Minister Benjamin Netanyahu's advisors insist that he cannot afford to wait until "after the holidays" or even December to assume the leadership of economy policy, which is built into his role. Netanyahu must make a decision regarding the complicated and deepening dispute between Minister of Finance Yair Lapid and Governor of the Bank of Israel Dr. Karnit Flug on whether or not to raise taxes, expand the deficit, and introduce 0% VAT for first time buyers of new homes.
The Prime Minister supporters say that the public quarrel between Lapid and Flug hurts the country, increases uncertainty over the economy and may worsen the slowdown, and even tarnishes the status of Netanyahu himself and could threaten the stability of the coalition.
Netanyahu is being urged to sit down with Lapid and Flug, "show them both respect," and hammer out a compromise. The suggested arrangement is that Flug will accept Lapid's position that taxes do not need to be raised at the moment, while Lapid bows to pressure from Flug and the MKs on the Knesset Finance Committee and cancel, or at least indefinitely postpone his 0% VAT plan for first time buyers of new homes.
The underlying assumption is that Lapid has no interest in leaving the government, at least at this stage, despite the enormous difficulties he faces in putting together and passing the budget. Leaving the government now in the wake of the Gaza war and the economic slowdown would be seen as "running away" from a difficult situation and would personally damage his political future.
Netanyahu's advisors feel that he seems more hesitant, thwarted and frustrated than usual and that he should take advantage of these early days of the cease-fire, before returning to the negotiating table in Cairo, to sort out the financial problems, before engaging intensively in defense matters. Moreover, his advisors say, making decisions on the economy and explaining them to the public will relieve the uneasy atmosphere over the economy and boost his image in the public's eyes as well as strengthening his position within the Likud, thus arresting the erosion in support for him according to surveys in the recent days of Operation Protective Edge.
The price tag for cancelling the 0% VAT plan is NIS 2.5 billion, releasing that amount for next year's budget. This alone does not solve the problem. However, together with expanding the budget deficit to about 3.4%, the agreed across the board cuts in the 2015 budgets of government ministries, and a more modest response to the requirements of the defense ministry, it will allow a smoother entry to 2015, while significantly reducing the need to increase taxes.
Published by Globes [online], Israel business news - www.globes-online.com - on August 28, 2014
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