The economic worldview of Avigdor Lieberman, leader of the secular nationalist Yisrael Beiteinu party, has started to come into focus in recent days. Lieberman is set to become Finance Minister in the unity government led by Naftali Bennett of Yamina, a right wing party, and Yair Lapid of the centrist Yesh Atid party, which is expected to sworn in next week.
Lieberman, who previously served as Minister of Foreign Affairs and later Defense Minister, has not held a significant economic position in his time in government, and until recently had not communicated much about his stance on economic issues. In recent interviews and statements to the media he has begun to address economic issues explicitly. His statements suggest that he is coming to the position with a relatively coherent worldview, one that differs significantly from that of the current Finance Minister, Israel Katz of the secular right-wing Likud party.
Back to the roundtable: Lieberman issued a call to set up a roundtable with the largest players in the economy to come to an agreement about the main economic measures necessary to restart the economy after the coronavirus crisis.
“In order to get the economy moving, dialogue is needed,” Lieberman said in an interview with News13. “In my first hour as Finance Minister, I will make a phone call to the Governor of the Bank of Israel, to the president of the Manufacturers’ Association and to the chairman of the Histadrut in order to promote dialogue between us.”
Lieberman wants to reinstate such a forum in order to formulate a “package deal” to exit the coronavirus crisis, similar to the deal that emerged from the economic crisis in 2008. Such a deal is expected to address issues like the minimum wage, wages and working conditions in the public sector, government investment, and taxation.
The chairman of the Histadrut, Arnon Bar-David, expressed his support on Thursday, saying that he sees the formation of a new government as an opportunity to develop the Israeli economy in cooperation with the workers.
“I expect an orderly government to be formed in Israel,” Bar-David said at a news conference with National News13. “The state needs this government as a breath of fresh air after the two years we’ve just had, and after the endless election campaigns.
“There is a chance here to promote the State of Israel, to do things that we have dreamed of for years. The health care system needs to be developed, hospitals need to be built. The health care system cannot be returned to the way it was before the coronavirus and left out to dry. Our education and welfare systems are collapsing, funds need to be invested there. There are many things that the state needs to address, and a partnership between the state and its workers can increase our ability to move the country forward.”
Bar-David said that he has “exchanged messages” with Lieberman, and that “we see eye to eye on a lot of things, we’ve discussed cooperation, orderly work, a roundtable between employers, the Histadrut and the Finance Ministry in order to advance things.”
Asked whether the Histadrut would agree to cuts or wage freezes, Bar-David said: "We understand the situation, so right now, over the last two years, I have been very responsible and I’ve given the country the quiet that it has needed in order to manage the crises. Consider if the workers had been out protesting, what sort of situation that would have led to in the economy or in the country. We gave the country time to deal with the crises, how exactly they chose to deal with them is a different story. When a government is formed and there is a budget, talks will begin and everything will be on the table.”
This optimistic vision of cooperation with Lieberman is in stark contrast with the Histadrut’s strained relationship with current Finance Minister Israel Katz. Katz pushed for a wage cut in the public sector, contrary to the Histadrut’s position, and rejected the proposal to adopt a flexible policy of support for furloughed workers.
Other major players in the economy have also been unsatisfied by Katz’s tenure: Manufacturers have been frustrated by the Finance Ministry’s response to the crisis, and the Bank of Israel's proposals for a plan to restart the economy were not accepted by the Treasury.
The deficit and payments to the ultra-Orthodox: Another point raised by Lieberman in the short interview concerned the sharp rise in the deficit during the Corona crisis. “The deficit’s jump from a target of 2.5% to 11.6% is clearly unreasonable,” Lieberman said. He followed up this statement with the problematic and economically meaningless calculation that “the debt of the State of Israel is currently about one trillion shekels — meaning that every person in the country owes 100,000 shekels.”
As a polished politician, Lieberman is likely very thoughtful about his decision to mention the deficit in a public statements and to paint it in such a negative light. Yet this statement is not necessarily reflective of reality, especially since professionals bodies and even credit rating agencies believe that Israel’s deficit is not problematic or unusual compared to other countries facing the coronavirus crisis.
Last week, Lieberman said that investing in national infrastructure was a legitimate deficit target, but “if you just spend money for its own sake you will create inflation and collapse the economy.” Based on previous statements of Lieberman’s, this quote suggests that Lieberman seeks to make cuts to transfer payments and allowances, with an emphasis on cutting payments towards the ultra-Orthodox.
Lieberman’s Yisrael Beiteinu party has promised to cancel government payments to yeshiva students. Ultra-Orthodox Jews make up about 12% of Israel’s population, and those who study in yeshivas are eligible for monthly stipends from the government. Only about half of ultra-Orthodox men are employed, while the other half rely on these government benefits.
Cuts to such benefits targeting the ultra-Orthodox sector seem to be on the table, despite Bennett's promise that no cuts will be made that harm the ultra-Orthodox. In an interview with News13, Lieberman did not say whether he would continue to stipulate school budgets with “core studies”: Hebrew, mathematics, and science classes in ultra-Orthodox elementary schools, but said “Everything is being done to help the yeshiva students stand on their own two feet, rather than through alms, allowances and stipends.”
Another issue that is vulnerable to change is the furlough assistance program: the decision to continue assistance after the end of June has not yet been signed into law, and if Lieberman takes office he could easily make changes to the program.
The plan to cut benefits may butt heads with another campaign promise: providing pensions to immigrants from the former Soviet Union. Many elderly people who have not accumulated a pension in the former Soviet Union and have since immigrated to Israel are forced to rely entirely on government benefits to the elderly. For years the Yisrael Beiteinu party sought to implement a special increase in government benefits for those who do not receive pension payments. According to Yisrael Beiteinu’s campaign platform, those whose sole income consists of government benefits to the elderly will receive an additional allowance of up to 70% of the minimum wage in the economy, a promise that will be difficult to fulfill without increasing the deficit.
In light of this, it should be noted that current Finance Minister Katz actually made an effort to reduce the hysteria regarding the size of the deficit. He even went against one of the highest ranking members of the Finance Ministry when she tried to limit spending on coronavirus relief payments. Of course, it is difficult to compare Katz and Lieberman’s stance on the deficit because of the different circumstances surrounding them. More than anything, their stances serve as a reminder that the deficit functions more as a political tool than as an actual economic issue.
Investing as an engine of growth: “The first thing to do is produce growth,” Lieberman said. Despite the danger he sees in the deficit, he does not seem to be afraid of increasing the deficit in order to fund a post-coronavirus investment program.
This statement is consistent with the economic platform published by Yisrael Beiteinu in the run-up to the last election. The economic section of the platform opened with the promise to promote a government investment plan in order to jumpstart an economic recovery: “The State of Israel is in a severe economic crisis due to the coronavirus pandemic. Since the days of U.S. President Roosevelt and the New Deal, we have learned that a severe economic crisis cannot be resolved through a free market economy but requires massive public investment in national infrastructure projects.”
If Lieberman does start a program of increased government investment in infrastructure, the move will correspond with the platform of Lapid’s Yesh Atid party, which called for similar steps in its campaign platform. Such a program would be in stark contrast to Bennett’s platform, which included tax cuts and budget cuts.
This policy would also contrast with that of current Finance Minister Katz. Katz proposed investing only five billion shekels in the infrastructure projects acceleration program, with the rest of the necessary investment achieved by attracting private investors.
No matter what, the main challenge will in any case be to create an investment plan. As all the relevant players have testified in recent discussions, the main problem in the field of infrastructure investment is supply — Israel simply does not start many infrastructure projects.
“Ineffective and inefficient tax hikes”: There’s one issue that Katz and Lieberman seem to be united on — a sweeping opposition to tax increases. In an interview, Lieberman said that a tax increase would be an “ineffective and inefficient step,” since the top two deciles of earners bear most of the tax burden.
The Bank of Israel, on the other hand, argues that the bulk of the investment in infrastructure should be financed first and foremost through heavier taxes, which are lower in Israel than the global average.