Australia / Israel Review

Amotz Asa-El

Even in Israel’s eventful politics, this one is unprecedented. A man who has never been a minister, deputy minister, or even a backbench lawmaker or small-town mayor, is thrust into the thick of the political fray – not just as a minister, but as Treasurer at a time when an austerity budget must urgently be planned, passed and executed.

This is where the 49-year-old Yair Lapid, the recent election’s dark horse, finds himself three months on, as the former TV anchor and newspaper columnist assumes responsibility for a multi-billion-dollar budget and an impatient middle class’s great expectations.

Experts agree that the Israeli economy, while suffering no major illness, is nonetheless in need of some bitter preventive treatment if it is to avoid serious ailments down the road. At the heart of the situation that Lapid inherited yawns a 4.2%-of-GDP budget deficit, the result of unplanned defence spending in the face of the Iranian threat, as well as expanded social spending following street protests back in 2011.

Once finalised and unveiled, Lapid’s fiscal-correction plan – which must become a bill by June 10 – is expected to be greeted by both a measure of social wrath as well as a political onslaught that will, in turn, constitute a baptism by fire for his improbable second career.

With the ominous examples of Greece and Cyprus nearby, there is general agreement in the new centre-right coalition that the deficit must be quickly treated. From an accounting viewpoint, the Treasury’s task is very straightforward: spend less and collect more revenue. Socially and politically, however, it would be an uphill struggle even for an experienced leader, with labour unrest, a widely predicted reaction to budget austerity, already beginning to bubble.

The spending cuts will likely be headlined by a slash in the defence budget. Reportedly, Lapid will seek a 7.5% cut, or NIS 4.5 billion (A$1.2 billion), in the Israeli government’s largest budget item, which at NIS 60 billion (A$16 billion) consumes 16% of the budget.

Other big cuts will include public-sector pay, where the Treasury hopes to slash an aggregate NIS 3.5 billion (A$930 million), and infrastructure, where several railway and highway projects worth roughly NIS 4 billion (A$1.07 billion) are expected to be suspended. Child support payments are planned to be cut by NIS 4 billion (A$1.07 billion) while transfers to ultra-Orthodox religious seminaries would be slashed by NIS 1.5 billion (A$400 million).

Since all these cuts will not suffice even if they are fully implemented, taxes will have to be raised as well.

This will reportedly be highlighted by a 1% increase in income taxes. The universal health tax, currently 5% of any gross income, will rise by half-a-percentage point, and value-added-tax will climb from 17% to 18%. Corporate taxes will rise by 1%. Finally, currently tax-free medium-range savings plans – where wage-earners and their employers deposit monthly deductions that mature every five years – will be taxed.

In short, regardless of means, status, profession or political persuasion – every Israeli stands to be affected by Yair Lapid’s fiscal overhaul.

The political backlash all this will inevitably touch off is expected to wedge Lapid between his coalition partners and the Opposition.

Within the Opposition, there will be three different types of attacks. Labor, which heads the Opposition, will depict Lapid as the conservative Netanyahu’s clone and henchman, a social impostor who is actually rich and aloof. The ultra-Orthodox parties will decry the prospective cutbacks’ impact on their schools and on their predominantly poor constituents. The unions will battle cuts in public-sector wages and taxation of savings.
The lesser concern, from Lapid’s viewpoint, will be the grievances of the ultra-Orthodox parties, since his election campaign demanded reducing the political power of that sector. The others, however, matter to him a lot.

Lapid does not want to be seen as anyone’s puppet, least of all Netanyahu’s, and he has no intention of emerging from this showdown as the perceived enemy of the middle classes. That is why he has met several times already with Ofer Eini, Chairman of the Histadrut, the umbrella organisation for Israeli unions.

The two have not reported on their discussions, but pundits believe Lapid is eager to make the unions part of the process by making concessions on the issues that matter most to them, and thus reach the cabinet and Knesset with the unions on board with his program. If he is successful at this, he will have scored a political coup that will possibly be the highlight of an effective political debut. Conversely, if he fails, the ensuing labour unrest might prove to be the bane of a flash-in-the-pan political career.

At the same time, Lapid is already facing mounting pressure from within the young coalition. While every minister is expected to oppose cuts in “his” agency, most pivotal will be the actions of the new Defence Minister, Lt-Gen (res.) Moshe Ya’alon.

The tall, bespectacled, soft-spoken former Chief of Staff is also relatively new in politics, though, unlike Lapid, he has been a lawmaker and a cabinet member for four years now. Caught in the narrow strait between Israel’s defence needs and economic constraints, Ya’alon is likely to do what most of his predecessors did in such a situation, namely defend “his” budget as if it was under enemy attack.

Lapid, for his part, will have little choice, both financially and politically, but to find a way to impose his will on the military.

These political repercussions, while elusive in their own right, will be dwarfed by Lapid’s concern over the social shockwaves of his first major political test.

A harbinger of what awaits the new Treasurer was afforded in one of his first meetings with Finance Ministry officials, where he spoke of a proverbial “Ms. Ricky Cohen” as an average middle class Israeli. A teacher, she and her “high-tech employee” husband together earn NIS 20,000 (A$5,300) monthly, he said, and vacation abroad every second year. Having also repeated this statement later that day on his Facebook page, the characterisation soon proved both a ringing success and failure at once.

The success is in the emergence of the virtual Ricky Cohen as a fixture of any economic discussion. The failure has been in the affluent Lapid’s ignorance of the middle class’ resources and lifestyle. What he portrayed, Lapid has now learned, was the upper middle class. The rest of the Israeli middle class earns, and travels abroad, considerably less than he assumed.

Yet it is that very middle class whose backing Lapid must retain and also cultivate if his current position is to be the beginning rather than the end of his spectacular political rise.

In terms of his ideas, Lapid is very much the economic conservative that his father, the late Tommy Lapid, was in Ariel Sharon’s cabinet where he served as justice minister, alongside then-finance minister Netanyahu.

The younger Lapid’s belief in small government and deregulation has led him to back Netanyahu’s “open-skies” reform, which will allow any airline to compete on routes currently reserved for selected Israeli and foreign airlines. The government says this reform will push ticket prices down and sharply increase tourism.

The scheduled cabinet vote on the plan ignited a strike by the three Israeli airlines, El Al, Arkia and Israir, who said unbridled competition would cripple them and entail mass layoffs. With thousands stranded at airports worldwide, the Histadrut said it would order ground workers to intermittently halt work at Ben-Gurion Airport, but before the threatened deadline arrived, the airlines backed down when the Govrnment promised to shoulder most of their security expenses.

The “open skies” reform comes out of the Transport Ministry, and as such is not part of the general fiscal drama. However, it serves as a curtain raiser for Lapid’s own potential showdown with the unions and the Labor Party.

For his part, Lapid will insist that he is the middle class’s true crusader while his opponents represent narrow interests at the expense of the broad public. Histadrut Chairman Eini is a pragmatist who, during seven years as Israel’s Number One union leader, has avoided calling major strikes. It follows that if Lapid plays his cards wisely he may yet emerge from the mayhem with minimum damage.

Then again, practically everyone will feel damaged the morning after swallowing Lapid’s bitter pill – the defence minister, the ultra-Orthodox, wage earners and savers as well as teachers, doctors, nurses, farmers, engineers, and corporate executives… not to mention Ricky Cohen.