Goodbye to Israel’s worst-ever finance minister, hello to Avigdor Lieberman

We are living in strange times. Who could imagine the leader of left-wing Meretz sitting in a government led by hard-right politician Naftali Bennett? Or any Israeli government doing business with an Islamist party like the United Arab List?

In the same vein, it’s hard to imagine Avigdor Lieberman as finance minister, let alone to contemplate that he might succeed at the job.

Whatever else you might think of him, Lieberman hasn’t been associated with economic policy of any kind over this long career. He had other fish to fry, many of them noxious.

Yet starting next week, “Finance Minister Avigdor Lieberman’’ is slated to become a part of our lives for as long as the Lapid-Bennett government holds on to power. And he could turn out to be one of Israel’s best finance ministers – certainly seen against Yisrael Katz, who Lieberman is replacing and who has the honor of being Israel’s worst-ever finance minister.

Yoram Aridor, who was finance minister in Menachem Begin’s first government, is usually considered the worst. He not only employed crude election economics before the election but continued to do so after the Likud had won the vote and the economy was careering to disaster.

Still, Katz wins on points. Israeli governments had stopped playing the election economics game, but Katz adopted the practice big time through his irresponsible coronavirus policies. Worse, he sacrificed the good of the economy by playing along with Prime Minister Benjamin Netanyahu’s cheap political maneuver of never submitting a budget to the Knesset during the brief life of the last government, which forced early elections.

What can we expect from Lieberman as finance minister? Let’s look back to his days as defense minister when he put aside his history of rabble-rousing and deferred to the defense establishment. We may expect similar behavior now that he has the treasury portfolio, and that’s a good thing because left to their own devices, the Finance Ministry mandarins will do the right things. What they need their minister to do is manage the politics of economic policy, and on that account, even Lieberman’s enemies admit he is the politician par excellence.

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Coalition agreements and the government agenda agreed upon by Yesh Atid and Yamina, the two parties atop the coalition taking shape, shouldn’t be taken too seriously, but they do follow policy prescriptions favored by treasury officials. With Lieberman’s political savvy, they just may be implemented.

The coronavirus non-crisis

The first important thing in the agenda statement is what it doesn’t promise, namely wide-ranging measures to cope with the post-coronavirus economy. It does pay lip service to the supposed crisis, stating that the “Israeli economy faces exceptional economic challenges in their scope and complexity,” but that isn’t true thankfully the statement offers no solutions.

The fact is that by almost every parameter, the economy is recovering from COVID quite well. The government would do best to leave things alone and concentrate on the real economic challenges: bringing Haredim into the labor market, providing more government resources to Israeli Arabs, and expanding the high-tech sector.

The Haredim pose a serious long-term threat to the economy by their refusal to fully participate in the labor market and their resulting high levels of poverty. The two key measures appearing in the agenda statement may seem technical, but they are important – lowering the draft exemption age to 21 from 24 and creating “positive and negative incentives” for ultra-Orthodox schools to teach a core curriculum of math, science, etc. 

The first aims to coax young Haredim out of the yeshivas (where they choose to study as the only way to remain exempt from army service) and into jobs and higher education. The second is aimed at giving them the basic skills they need to get a job in the first place.

By themselves, neither will spark an unemployment revolution. That will only come in the budget (see below), where the government will have to decide whether it will cut allowances and other aid to yeshiva students.

Given Lieberman’s antipathy to the ultra-Orthodox, it may just happen.

Moving onto Israel’s Arabs, if the socioeconomic problems they face weren’t obvious a month ago, the rioting that gripped Israeli cities last month has brought them to the forefront. Although an official statement has yet to be made, media reports say that the new government has committed to spending 30 billion shekels ($9.25 billion) between now and 2026 on health, education, infrastructure, education and housing.

The money is badly needed. Growing numbers of Israeli Arabs are joining the middle class, but as the rioting amply demonstrated, many others are being left behind.

That can’t be allowed to happen. Give credit to United Arab List leader Mansour Abbas for recognizing that what Israeli Arabs need is effective politicians looking out for their interests.

Fostering Israeli high-tech is no less important. In the post-COVD era it has become the V-8 growth engine for the Israeli economy, but it won’t be able to continue that way if the chronic shortage of tech workers isn’t alleviated.

High-tech’s share of the country’s total labor force has never exceeded 10%, even though we’re supposed to be the tech-r-us country. The agenda statement calls for increasing the share of tech personnel in the labor force to 15% by 2026 from 9.2% today..

That’s an ambitious goal to say the least, and the agenda statement is a little vague about how to do it, except to say it will be done via the schools and professional-training programs. We will have to await the details to make a judgment call, but at least the new government’s heart is in the right place.

Above and beyond these big-ticket items, the biggest gift to the economy the Lapid-Bennett team can give us is a stable, functional government.

The agenda statement’s call for two two-year budgets should help. Economically speaking, ordinary one-year budgets are preferable because they are better able to align fiscal policy with the changing needs of the economy. But the two-year spending packages will give the coalition partners fewer opportunities to use the budget to bring down the government as Netanyahu did. In this case, putting economics in the back seat and politics at the wheel is the least worst option.