Netanyahu's Economic Smoke and Mirrors

Article Summary
Gideon Eshet suggests that Israeli Prime Minister Benjamin Netanyahu pushed up elections because he anticipates the economy will take a turn for the worse soon, leaving him high and dry. His era as the "super minister of finance" was just a combination of good public relations and timing, says Eshet.  

Between Elections and Austerity

When he was serving as the Finance Minister of Israel [from 2003 to 2005], Benjamin Netanyahu used to pride himself about his accomplishments — above all, his success in saving the Israeli economy from the dot-com bubble crisis, which had originated in the United States and subsequently snowballed throughout the world.

However, the then-Finance Minister of Israel was wrong and, in turn, misled the public. True, in his past capacity as Finance Minister, Netanyahu initiated a number of moves, some of them revolutionary in Israeli standards. Thus, for instance, he nationalized the veteran pension funds. It may be worth noting that the nationalization cut deep into the pensioners' savings, but this is not the main point. The point is the use made of the nationalization tool — a tactic customarily associated with left-wing politicians — by a right-wing finance minister.

The most intriguing move taken by Netanyahu in his past incarnation as head of the Treasury is the reform of the child benefit system of payments. Up until then, the monthly allowance [variously known as guardian's allowance or children's allowance] granted by the National Insurance Institute for the fourth child and above in a family was significantly higher than that received for the first child. This was the outcome of the secular parties' capitulation to pressures exerted by ultra-orthodox Jewish parties. [The ultra-orthodox Jewish community in Israel is known for its exceptionally high birth rates.] Netanyahu changed the method. Alluding to the saying,  a "thin man carrying on his back a fat man," he stated that all children were entitled to equal allowances. He later boasted that, thanks to his modified payment policy, birth rates among the Bedouin community in Israel, living for the most part in the southern desert part of the country, had dramatically dropped.

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However, Netanyahu, who had resigned from office as Finance Minister in 2005, returned to center stage three years ago — this time around, as Israel's Prime Minister. Once back in power, he reinstated the old child benefit system of payments adopted at the time under coalition pressures. And while that unjust system of payments was not fully restored, its principles have been re-established in whole. This is the way with Bibi.

Netanyahu is still perceived by the public as the knight in shining armor who came to the rescue of Israel's economy and saved it from crashing. However, statistics, so unfairly, do not support the argument. Netanyahu was sworn in as Finance Minister in the spring of 2003. In hindsight, it is now clear that the turnaround from economic recession to economic acceleration, had already been underway long before Netanyahu had a chance of doing anything in his newly assumed office in the Treasury. His predecessor in office, Silvan Shalom [currently, Vice Prime Minister and Minister for Regional Development and the development of the Negev and the Galilee] complains that Netanyahu,  by employing brilliant public relations, has robbed him of his duly deserved glory.

All this brings us back to the present. It is not by accident that Prime Minister Netanyahu seeks to hold the elections for the next Knesset as soon as possible. Almost all economic figures point to a turn for the worse that looms ahead. Just a few days ago, Israel's Central Bureau of Statistics published data concerning the growing unemployment rates. And what's even more disturbing is the accelerated pace at which unemployment in Israel is escalating.

At the same time, the governmental budgetary deficit seems to be growing beyond control. Appearing before the Knesset Finance Committee last week, Finance Minister Yuval Steinitz admitted that governmental expenditure considerably exceeded revenues. (When talking in percents, the deficit looks much smaller …) Moreover, the recent tax reductions further burden the state budget, making it ever more difficult for the government to meet its financial obligations. The government debt [also known as public debt or national debt] has increased by billions of shekels (and that's why it is officially presented in terms of percents). The government has failed to fulfill its pledge to diminish poverty. And even worse than that, the surplus in Israel's trade balance has sharply shrunk in the past year, so much so that the state's balance of payments is currently in the red. While the price of imported goods is steadily decreasing, due to the falling dollar-to-shekel exchange rate, Israeli exports are on the decline. The implications for the Israeli market are already clearly manifest. See, for instance, the case of the local Dafron firm [the leading Israeli manufacturer of note pads and envelopes that has recently run into difficulties and is now selling out 80 percent of its business activity].

Claims have been made attributing the financial straits the company is in to the fact that, in the new digital era, writing in pen and pencil is no longer in vogue among school children. However, even if there is some truth in it, the luxury is limited to students in the higher classes and in the better-off regions of the country. Elementary school children in Israel are still using paper note pads and, at present, there are more elementary school students than there were in all local education frameworks a decade ago. In other words, the use of paper note pads has increased rather than decreased. However, note-pad production, not to mention note-pad exporting, is no longer profitable in Israel. And the situation is bound to get even worse, for no other reason than the government's policy.

Given the current buildup of economic pressures, the trend is quite obvious: we are heading to economic austerity in the coming year. The same as in Greece and Spain, an austerity plan, although not necessarily as severe, will inevitably be imposed on us, prescribed by the dire economic circumstances. The sooner the parliamentary elections are held, the greater the chance that the depth of the dark abyss dug by Netanyahu's economic policy will not be noticed — by the majority of the public, at least. The Prime Minister is well aware of this and is thus interested in holding the elections in early September rather than wait for even October.  With each passing day, another economic black hole is exposed here.  

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Found in: recession, netanyahu, israel, finance;, elections, economics, benjamin netanyahu
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