Coronavirus has changed everything in Israel, not least the public discourse about the economy. The starting point has been a narrow, neoliberal framework entirely based around the free market, where the right proposes a trickle-down model and the left wants a redistribution of wealth to those more in need, without a deeper analysis of the welfare state.
The pandemic, and its accompanying economic crisis, has forced the discussion about government welfare into the light, creating a demand for higher investment in public services and marginalized communities. Next week, Israel will head to its fourth elections in two years, and the competing parties must address the new economic realities both in Israel and around the world.
In America, for example, pandemic response included distribution of welfare checks to citizens, a trillion dollar spending package and an expansion of social welfare programs, with ensuing debt seen as worth it in order to boost employment and avoid greater economic strife. How will Israel’s political parties respond to the reemergence of welfare? What economic plans do they propose to deal with Israel’s economic crisis?
Of all the parties, Meretz has by far the most progressive economic platform. The problem is that Meretz will almost certainly not join the next government, and at the moment seems close to losing all seats in parliament.
Meretz is the only political party in Israel which has placed increased government spending in light of the coronavirus crisis clearly into their economic plans, even at the cost of pushing Israel’s already rising debt higher. In fact, Meretz is the only political party to incorporate recommendation made by the IMF and OECD concerning public debt into their economic platform: “The Ministry of Finance’s insistence on keeping public debt levels low, against the recommendations of world renowned economists, have already caused unnecessarily high levels of unemployment,” says the party in its manifesto.
Instead of tax hikes or spending cuts, Meretz proposes to continue increasing spending to fund a range of emergency measures, which would include stimulus checks, increased unemployment benefits, and subsidies to businesses- but fail to mention the necessary scope of government aid.
Meretz is also the only party to propose pay raises in the public sector, as opposed to pay freezes, or even wage cuts proposed by other parties. Their platform calls for “considerable” raises for front-line essential workers, such as nurses and doctors, and recruitment of a large number of crucial public sector workers, to reduce the workload.
Meretz has also proposed to adopt a wealth tax, which would be levied on accumulated wealth, and would be at an annual rate of 1%-3%.
Yesh Atid’s economic platform marks the middle ground of Israeli politics, with a mixed, vague and often contradictory set of policies.
Although they remain vague when it comes to the details, Yesh Atid’s policies include massive infrastructure investment, which is equated with President Biden’s Green New Deal plan. This would see the government invest in green energy sources, transport and education infrastructures.
In contrast to all this, Yesh Atid also proposes to freeze public sector wages, together with a freezing of all recruiting of new public sector employees for three years, which would mean a accumulated cut of 5.7% in public spending. Apart from the disastrous effects of public sector wage cuts during a recession, this policy seems to be out of sync with the impressive investment plan that the party seems to be implying. Put simply, this means that the Israeli government will have to implement an investment plan on the scale of the New Deal without recruiting a single new employee into the public sector.
The Likud, the ruling party in the coalition and the one that is expected to win the most votes in the upcoming elections, has not published an economic platform. Due to the fact that this is the ruling party, one can look at the laws it has enacted and not just its declarations, and mark it as conservative and neo-liberal economic right-wing. However, since the outbreak of the epidemic, in practice, Likud’s majority government has provided significant aid packages to the Israeli economy.
The Likud party is in an internal conflict over its attitude to organized labor, and to the social services and public investment that often accompany this position. The party’s base comes from the deciles that have suffered a severe economic blow due to the pandemic, and Likud is trying to navigate between trying to appease this base versus attracting other electorates.
It can be said that quite a few workers' struggles are currently taking place in Likud institutions. Many unions encourage their members to work for influential parties in power in an attempt to influence from within their attitude toward organized labor. Many union leaders are Likud members who, through the democratic primaries held in the Likud, influence the composition of ministers and the balance of power in the party. When Finance Minister Israel Katz announced his intention to cut the salaries of public sector workers at the height of the pandemic, central members of the Likud criticized him.
"That's not the way he will lead the Likud," said Yossi Barbie, chairman of the Security Workers' Union, in critique of Katz.
"It is no secret that I am a right-wing man and these are my positions, but the Likud also knows that those who represent workers are first and foremost committed to the workers and the Histadrut," said Israel Goldstein, chairman of the Jewish National Fund union, in response to the policy.
Last month, Naftali Bennett, leader of the Yamina party, published his party’s economic platform, known in Israel as the “Singapore Plan.” It has attracted both criticism and acclaim for being one of the most radically pro business platforms in recent years.
The plan gets its name from a series of reforms which Bennett claims to be inspired by tax and labor policies in Singapore. The two most straightforward and clear measures proposed by Bennett are tax related: Yamina would reduce income tax by 15% for all income brackets, and reduce the corporate tax rate from 23% today, to 15%.
Apart from the fact that average income taxes in Israel are today slightly lower than the OECD average, Bennett’s proposals will clearly increase Israel’s already high levels of inequality. A 15% across the board tax cut will disproportionately benefit high income earners, who will see a large increase in post tax income, as opposed to lower income households, which will benefit far less.
Bennett also bases his proposals on the assumption that a tax cut, and particularly a corporate tax cut, will contribute to robust growth after the pandemic is over. This is reminiscent of President Trump’s promise that his 2017 tax cuts would push US growth over 3% for several years to come. In fact, US growth never reached 3% in any of the years since Trump’s tax cut.
Economists are divided, to say the least, on the question of whether corporate tax cuts have any effect on economic growth whatsoever. A recent study conducted at King’s College, London, surveyed a large number of tax cuts around the world in recent years, and found no evidence of any influence on economic growth.