Middle class won
Op-ed: Next government will have to define economic problems before trying to solve them
The protest won. The middle class, in its broader definition, has spoken. The new Israelis said: We've had it with Netanyahu's regime. We want a new face in the political mirror. We want Lapid, Yachimovich, Bennett. Not Bibi.
A different kind of politics won. The votes were tallied and the surprise is great. Netanyahu, as I predicted, erred when he brought the elections forward, and people pay for such mistakes – for the purity of politics and the future of our children. The young and innovative parties made headway. Likud –a tired party with a detached leader – was defeated. Netanyahu, who has led to the dramatic collapse of his party for the second time, must go home.
It remains unclear when and how the next coalition will be formed and who will head it, but Bibi is seen as a loser. This will have some complex repercussions on the economy: The new government's first order of business should be to prepare this and next year's budget.
This, supposedly, is what the elections were moved up for. Now the mission is to establish a new government and determine its leader ahead of the budget test. This situation is not healthy for the economy, but it is not disastrous either.
To deal with the budget issue the next government will first have to define the problem, something the previous government did not do. The numbers are important. The 2013 budget deficit must not amount to more than 3% of the GDP, which is NIS 30 billion. The deficit in 2014 must not amount to more than 2% of the GDP – some NIS 22 billion. Achieving these two goals will assert Israel's credibility in the eyes of the international community. Another deviation from these goals will not be forgiven.
The economic slowdown will make it very difficult to achieve this goal, regardless of who heads the next government. Fast economic growth delivers more taxes to the Treasury and cuts the government's deficits. The exact opposite occurs when the economy slows down, as it is doing now. Exports fall, and domestic growth engines falter. Residents consume less and save more.
Businesses invest less and do not hire new workers. Contractors are wary of beginning new ventures and the banks have no sources to expand credit. Unemployment may increase significantly in the near future. In light of all these forecasts, the Bank of Israel lowered the interest rate; it would not have done so had it not feared a severe recession.
The only ray of hope is the improvement of the global economy. The threat of the EU's dissolution has not been lifted, but it is not as severe. The US is recuperating: The budget deals that have already been finalized between the Democrats and Republicans removed many of the threats.
The 2013-2014 budget will have to walk a tightrope between an uncompromising commitment to cutting the deficit and maintaining full employment; between respecting signed agreements and multi-year plans and the constraints of a rough one and a half years; between macroeconomic stability and the social justice demanded by the voters. Therefore, the budget must be prepared by with an "end to beginning" perception in mind, meaning from 2014 to 2013.
Only a government that relies on broad public support and favors the preferences of the young voters can complete the task – and only with broad national agreement and without paying sectoral bakshish.
Considering the level of uncertainty and the many tasks at hand, the parties would be wise to take their time before making any economic decisions.
The current legislation grants the government a respectable amount of time to deal with budgetary uncertainty. The next government should make full use of this time and perhaps even extend the time period beyond September. In the meantime, the State will make do with 1:12 of last year's operational budget.
