Why Netanyahu Is Putting Off The 2013 Budget

Article Summary
The latest data points to a sharp decline in the Israeli economy, writes Yehuda Sharoni. And the 2013 state budget was supposed to serve as an economic compass, but since many of the country's decision makers lack economic integrity, the budget is kept under wraps, deep down in the Treasury drawers.

As sports commentators say, the scoreboard does not lie. More and more data on the Israeli economy published in recent days indicate that it is shifting toward deceleration. In the absence of a change in the positive direction, it would not surprise us if in a quarter or two we see the Israeli economy slipping down the slippery slope into a dangerous recession.

Data released this week shows that this is, in fact, where we are heading. The consumer price index (CPI) for June announced on Sunday, July 15 is negative and, contrary to expectations, dropped by 0.3%. It only goes to show how cost-conscious we have become and how difficult it is for us to just pull out the credit card without thinking twice about it. The industrial exports, which are one of the most significant indicators of the soundness of the economy, suffered a loss in value of 12% in June compared with May. The daily trade turnovers at the Tel Aviv stock exchange continue to be lower than the daily revenue at the Tel Aviv Carmel Market, the city's largest open-air bazaar. Trade turnovers plunged Monday, July 16 to a low of a little more than $100 million, a mere one-fifth of the common turnovers on days of peak trading activity at the Tel Aviv stock exchange. Revenues from stock exchange taxation are on the decline. At the same time, investments are expected to diminish because of the difficulties encountered by companies that seek to raise capital, and economic growth is bound to subsequently fall off as well.

There is no need for analysts' reports to be publicized to conclude that 2012 is going to be a tough year or to predict that 2013 is going to be even tougher. At present, we are still stuck with the farce of the 2012 budget (the second half of the biannual budget), which has become totally irrelevant.

Given the dark clouds of economic uncertainty looming ahead, the business sector, the public sector and the private sector would all welcome information that could give them a clue as to what the future holds. Any businessman would like to know what the future corporate tax, income tax and VAT rates are going to be and what governmental investment budget and security budget may be expected for the coming fiscal year. All these data should have been made available upon the release of the state budget for 2013. Once publicized, such information would have enabled the updating of work programs and business strategies.

The 2013 state budget was supposed to serve as an economic compass for all the parties concerned. However, in the absence of economic integrity on the part of the decision makers, the budget is kept under wraps, deep down in the Treasury drawers. It is no wonder then that, having failed to set long-range economic goals, the government is preoccupied with the procurement budget for the cabinet members' vehicles.

It has not always been like that in the Treasury. Customarily, by July-August, the government is supposed to be past the phase of debate on the state budget formulated by the Treasury and submit it to parliamentary approval in September (toward the end of the Knesset summer recess). However, this year no budgetary discussions were held, with the exception of one stormy meeting, after which Prime Minister Benjamin Netanyahu sent off the Treasury Budget Department staff on summer vacation. The prime minister is hiding away the budget, as he would rather take time out from the problems of the social justice protest, the budgetary deficit and the controversy with the Bank of Israel Governor. For political considerations, Netanyahu is putting off the deliberations on next year's budget pending a decision on the Plesner Committee recommendations on mandatory military service for ultra-Orthodox Jews and Israeli Arabs and resolution of the attendant mini-crisis that threatens the Knesset  coalition.

We are not going to be taken aback by surprise if the prime minister makes another U-turn and announces early elections shortly. (In early May, Netanyahu announced early elections, but the night before the dissolution of the Knesset he announced a new coalition with the opposition Kadima Party, a coalition that ended on Wednesday.) Some in the Israeli political establishment say that it's Netanyahu's smugness that trapped him last time, when he retracted the initiative for holding early elections in May. A similar mistake, although under completely different circumstances, was made by current Israeli President Shimon Peres when, in 1995, soon after the assassination of Yitzhak Rabin, he opposed the proposal to move up elections and ultimately lost his seat to Netanyahu in the 1996 elections.

If, this time around, early elections are indeed held, the "unfriendly" 2013 budget will be ratified only after the elections. In this case, Netanyahu will be able to swing the ax and slash social welfare budgets free of the specter of social justice protest, and without having to pay for it at the ballot box.

Found in: stock exchange, recession, political considerations, national deficit, exports, economy, pm netanyahu, ministers vehicles, israel, cpi, budget 2013, bmw

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