The new government's economic challenges

Tel Aviv traffic jam  photo: Eyal Izhar

Transport, energy and healthcare are three areas where big decisions loom, and determination will be needed to carry them out.

Steinitz hopes for another term

As of now, current Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz is the only one to declare a desire to head this ministry, a position that few in the outgoing government wanted. On the other hand, Steinitz's political position does not put him high among those whom Netanyahu wants to reward with a ministry.

Sources close to Steinitz cite the fact that important measures were begun during his term and are now reaching the implementation stages as a reason for leaving him in his position. This includes the Israel Electric Corporation reform, which will enter the critical implementation stages this year, and the beginning of natural gas production at the Leviathan, Karish, and Tanin reservoirs. At the same time, new gas exploration licenses stand to be distributed, while for the first time, major companies like Exxon from the US and Petrobras from Brazil are showing interest in the Israeli market.

Steinitz is determined to move ahead with his grandiose plan for laying the world's longest undersea gas pipeline to southern Italy in order to export gas from Israel and Cyprus to Europe. The plan has so far failed to arouse much enthusiasm among potential developers. In the water sector, Steinitz has begun promoting the 2030 plan aimed at refilling Lake Kinneret, a task unexpectedly made easier by the plentiful rain this winter. Steinitz would welcome similar assistance from heaven in obtaining a second term.

Kahlon will have to forget about absolute independence

Minister of Finance Moshe Kahlon would love to continue in his job, but he is quite aware that his position has become weaker.

Moshe Kahlon has already announced that as far as he is concerned, it is the Ministry of Finance or nothing, but even if he does retain his position, his position is clearly inferior to what it was in the preceding cabinet. This time, absolute independence, backed by a signed agreement with Netanyahu, is not guaranteed. If Netanyahu insists, he may be able to force Kahlon to agree to a compulsory arbitration clause restricting the right to strike in government monopolies. This demand will put Kahlon's good relations with the Histadrut (General Federation of Labor in Israel) to the test.

Labor relations, however, are not the most urgent problem on the minister of finance's desk. The cabinet has to pass the 2020 budget in June-July, which means that the budget framework has to be presented to the minister of finance in May. Work in the Ministry of Finance budget department on preparing the budget is taking place at full speed, with the focus being on reducing the fiscal deficit. The plan is likely to include tax hikes, a reduction in tax breaks, and spending cuts.

Kahlon, who has already announced that he will prevent tax hikes and welfare budget cuts, faces a clash with the ministry's professional staff, which will probably win support from the Bank of Israel.

The interesting question in housing will be whether the minister of finance succeeds in retaining control over the planning administration and the Israel Land Authority, which at his insistence were transferred to the Ministry of Finance in his previous term. Shas leader Aryeh Deri has already stated that he will make sure that the planning administration is returned to the Ministry of the Interior, and here, too, Kahlon is liable to find himself in an inferior position. If there is one thing that Kahlon is ready and willing to go to war over, it is the continuation of the Buyer Fixed Price Plan that he initiated. On this point, he is likely to succeed.

In addition to the budget and housing market problems, the minister of finance will also have to devote time to the transportation crisis. The Ministry of Finance is planning measures to reduce traffic congestion, and the minister of finance will be asked to support them.

Kahlon did not show much interest in transportation during his term as minister of finance, but Kulanu highlighted the issue in its platform, among other things promising to establish a transportation cabinet and metropolitan transit authorities. In the preceding government, Kahlon kept all of his promises to Kulanu's voters. Will he have the power and desire to do so this time?

The old lady in the hospital corridor is waiting for a check

The minister of health will need billions of shekels just to maintain the current situation.

It is widely believed that the next minister of health, or rather, the deputy minister of health, will again be United Torah Judaism chairperson MK Yaakov Litzman. On the one hand, the population is aging, while on the other hand, the budgets for the health system do not meet the needs, and are being reduced. In order to make a real change in the health system, the next minister of health will have to change the government's priorities, always a difficult challenge that Litzman had trouble meeting, especially when the fiscal deficit is exceeding what was planned in the state budget and public discourse is oriented more towards defense than the economy and society.

The health system in Israel is hanging by a thread and is in urgent need of more money. How much money is lacking? At least NIS 3 billion in addition to the current NIS 60 billion, mostly for the health funds, but also for additional programs in hospitals. The Ministry of Health, however, believes that this money will merely help preserve the existing situation. In order to rehabilitate the system, much larger sums are needed, estimates for which range from NIS 4 billion to NIS 7 billion, plus a budget base spread over a decade.

Litman himself last week signed a commitment to put a NIS 5 billion health budget supplement into the basic guidelines for the next government - an initiative of the NIS 5 Billion for Health Forum.

The plans led in the Ministry of Health and the Ministry of Finance in recent years to halt the increase in the proportion of private spending in total national spending on health, such as the law barring a doctor from operating on a patient privately for six months after treating that patient in the public health system, the reimbursement arrangement in a health fund for selecting a surgeon exclusively from an approved list, and the plan for shortening waiting lines for surgery, have had little success, although these plans should be assessed in the long term.

How much has the proportion of private health spending in total health care spending declined? From 39% in 2007 to 35% in 2017, still far above the OECD average of 28%. The problem is still acute. Only recently, an Adva Center report showed spending by Israelis on private health insurance (supplementary health insurance by the health funds and commercial health insurance) tripled in the past 17 years, reaching NIS 14 billion in 2017. According to the Central Bureau of Statistics, the proportion of total household expenditures in Israel that goes on private medical insurance rose from 18% in 2000 to 33% at present.

There is only one way to continue reducing private spending on health - strengthen the public health system and spend more money on it. Considering the NIS 50 billion budget deficit in 2019, far from the target, however, obtaining more money for the health system is a daunting task, to say the least.

The wage agreement with the doctors, which will be reopened early next year, poses a problem for the next minister of health. The minister will have to use it more effectively than his or her predecessors in addressing social gaps, especially the differences in health services between the central region and the outlying areas. The previous agreement in 2011 did not give doctors enough incentive to select specialties with a shortage of doctors (anesthesiology, internal medicine, geriatrics, surgery, and others), or to move to the outlying areas.

A new road

Veteran Minister of Transport Yisrael Katz will try to improve his political standing in preparation for the day when Netanyahu leaves the scene. Katz was the longest standing minister in Netanyahu's last government, but it is by no means sure that he will stay in the same job. He is thinking about the post-Netanyahu era, leadership of the Likud, and perhaps the country. In order to reach this position, he needs a more senior position: minister of foreign affairs, minister of defense, or minister of finance. Will this happen? The answer depends on the coalition negotiations and on Netanyahu's penchant for weakening and getting rid of potential competitors and heirs.

The plight of transportation in Israel is making the transportation portfolio one of the most important jobs in the government. The new (or old) minister will have to cope with many challenges. After a decade in which the government built road interchanges, high-speed roads, and interurban railways, it will now have to address urban congestion.

In the short term, the existing public transportation must be improved. Public transportation lanes must be marked and enforced, and buses must be enabled to drive faster within cities. The new minister may find it easier to implement the old recommendation to establish metropolitan transit authorities, which will encourage the cities to cooperate in promoting public transportation, instead of obstructing it.

In the longer term, the minister of transport's most important mission will be to move the ambitious metro project forward - three high-speed underground railway routes with 140 kilometers of tunnels below the entire greater Tel Aviv area. The government has not yet decided where the huge NIS 150 billion budget need for this project will come from.

Can the state budget bear the burden, or will the project be carried out in cooperation with the private sector? The government is planning to begin implementation of the project in 2020, so decision must be taken quickly, simultaneously with mass transit in other metropolitan areas: more light rail lines in the Jerusalem, improvement of the Metronit rapid transit bus system in Haifa, and a light railway in Beersheva.

Israel Railways also has problems: its carriages are crowded and electrification of railway tracks is being delayed. The new ministry will have to expedite the purchase of new carriages, solve the electrification crisis, and deal with Israel Railways' militant workers' committee.

Katz has exerted all his influence to prevent the imposition of a road use tax or congestion fees. In the future, however, there will be no choice. With the Ministry of Finance's cooperation, a plan can be formulated for cutting purchase taxes on cares or the excise tax on gasoline, while imposing more just usage taxes that will encourage drivers to avoid entering cities during peak hours. The Ministry of Transport must also prepare for the coming vehicle revolution: electric cars in the nearer future and autonomous cars late in the next decade.

The next minister of transport will implement the reform in the ports. Barring delays, a southern private port will be inaugurated in Ashdod in 2021. With the help of quays suitable for large ships and automated mechanisms for unloading them, the new port will be very competitive and could put Ashdod Port, which has been in a state of crisis in recent years, with falling profits, out of business.

The next minister of transport will have to make a decision about building a new international airport at Ramat David or Nevatim in order to back up Ben Gurion Airport, which is not meeting the demand. The political parties have made a number of ministerial portfolios very desirable: defense, education, finance, and justice are only some of these. No party is demanding the transport portfolio, but that is where a minister who wants the position and is willing to battle and make unpopular decisions to rescue Israel from its dire traffic jams is needed.

Published by Globes, Israel business news - - on April 11, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Tel Aviv traffic jam  photo: Eyal Izhar
Tel Aviv traffic jam photo: Eyal Izhar
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