The financial trials of Bezalel Smotrich
Dec 16, 2022 | Amotz Asa-El
With thousands of marchers threatening to physically prevent Israel’s retreat from the Gaza Strip back in the summer of 2005, police arrested four demonstrators who allegedly planned to block inter-city traffic.
The four were later released without charge, and three of them were soon forgotten. For the fourth – a short, bearded, 25-year-old law student named Bezalel Smotrich – those heady days would mark the start of a meteoric political career that is now reaching a climax. He is set to become the next treasurer of the Jewish state.
Though he personally represents a relatively small party of mostly Modern Orthodox settlers, Smotrich led a federation of three such parties into November’s election. They won a combined 14 of the Knesset’s 120 seats, becoming the third largest party in the Knesset after incoming Prime Minister Binyamin Netanyahu’s Likud and departing Prime Minister Yair Lapid’s Yesh Atid (“There is a Future”) party.
Under the name of Smotrich’s own faction, Religious Zionism, the three-party federation emerged as the incoming coalition’s second-largest member after the vote. Yet the three parties which had run together under the “Religious Zionism” banner immediately split following the election and negotiated deals to join the incoming coalition government separately. Nonetheless, their combined leverage was such that their political booty is going to be very substantial. Smotrich’s share of that booty is set to make him the second most powerful man in Israel’s 37th government.
That alone would be a remarkable feat for a man who only entered the Knesset seven years ago, and earned fame – not to say notoriety – for his outspoken conservatism and hawkishness. Over the years, Smotrich has made headlines for helping organise a “beast parade” of goats and donkeys in 2006 to protest Jerusalem’s gay pride march; for quipping, “I am a proud homophobe,” during a meeting with high school students in 2015 and for torpedoing Netanyahu’s attempt to include an Arab-supported Islamist party in his coalition half a decade later.
Smotrich’s new position comes after a stint as transport minister in Netanyahu’s previous cabinet, an 11-month tenure during which the energetic and eloquent lawyer seems to have proven himself to be an efficient executive. Displaying a grasp of detail that outspoken ideologues often lack, Smotrich created a car-pool lane in the coastal highway, extended the Tel Aviv-Jerusalem fast train and linked public transportation ticketing to smartphones.
Now, however, the 42-year-old father of seven and son of a communal rabbi will be expected to tackle issues far larger than buses and trains.
Overseeing a budget of some $A253 billion and an economy of roughly $A733 billion, Israel’s finance minister or treasurer [Ed. Unlike in Australia, finance minister and treasurer are interchangeable words for the same post in Israel] wields enormous power, both economically and politically. Two of Israel’s 14 prime ministers – Levi Eshkol and Ehud Olmert – proceeded to the premiership from the Treasury. Two others, Shimon Peres and Netanyahu, were first prime ministers and then served as finance ministers for a time before returning to the top job.
Still, the finance minister’s power is a function not only of their office but also of their political clout. In Smotrich’s case, this clout will likely be precarious.
Ideally, as far as both the economy and the minister are concerned, the treasurer would represent the ruling party, and also be powerful within it. That was the case, most memorably, with Levi Eshkol, who served as finance minister for 11 consecutive years (1952-1963). During that time, he was Labor’s power broker and also enjoyed party leader David Ben-Gurion’s total trust.
Conversely, in 1981, Menachem Begin’s finance minister, Yigal Hurvitz, was ultimately compelled to quit after just 13 months because he belonged to a small party and lacked the authority to impose painful budget cuts on other ministers at a time when inflation was spiralling out of control.
Smotrich will arrive at the Treasury in an entirely different economic era.
Israel today boasts the developed world’s fastest growth rate this century, as well as some of the lowest inflation, debt, and unemployment levels, and average per capita incomes and per capita foreign currency reserves that are amongst the highest in the world. The Jewish state is now a mature economy that has emerged almost unscathed from the past three years of pandemic disruptions and political turmoil.
Even so, Smotrich faces some formidable challenges, most crucially soaring housing prices which, having climbed 177% since 2008, make it almost impossible for young families to buy a home. While the factors driving this problem are uniquely Israeli – reflecting high demographic growth and scarce urban real estate – Smotrich will also face global inflationary pressures caused by Russia’s invasion of Ukraine.
To be effective on these fronts, he will have to wield authority over the rest of the government’s ministers, and his prospects in this regard appear bleak. Some of Likud’s lawmakers are openly complaining about what they see as the excessive power that Netanyahu is handing to coalition partners like Smotrich at their expense.
As they see things, Netanyahu should have reserved the Treasury for a member of the ruling party, the way Labor did throughout its decades of heading Israeli government.
Netanyahu is aware of this political undercurrent in his own party, and in fact has his own account to settle with Smotrich, who was recently taped saying that Netanyahu “is trouble”, is “a liar”, and that he “will not stay here forever” because “at some point he will be convicted” [Ed. a reference to Netanyahu’s ongoing trial on corruption charges which he vehemently denies.].
Netanyahu’s wary or even hostile attitude toward Smotrich became apparent shortly after the election, when in response to Smotrich’s demand to be made defence minister, Netanyahu refused to meet him for several days, and when the PM-elect finally did meet him, it was only in order to flatly reject Smotrich’s demand.
This may explain why the deal he struck with Smotrich is that the Religious Zionism leader will be treasurer for only half a term, after which he will rotate with Shas party leader Aryeh Deri, who will then bequeath Smotrich the Interior Ministry.
This unusual arrangement’s financial impact notwithstanding – markets appreciate stability and dislike uncertainty – it is also odd programmatically. Deri and Smotrich represent diametrically opposed attitudes toward public spending.
Deri, whose voters are largely less educated and lower income earners, wants the Government to distribute plastic cards allowing the purchase of food at subsidised prices to “the needy”.
Smotrich, by contrast, is a staunch believer in deregulation, low taxation, and “small government”. What he will do with Deri’s tax-and-spend demands remains to be seen. Ordinarily, Smotrich could ask Netanyahu to support him in such a confrontation, because, in principle, the prime minister-elect fully shares Smotrich’s Thatcherist economic approach. The problem from Smotrich’s standpoint is that, politically, Netanyahu may prefer to see Smotrich weakened and Deri strengthened.
Deri in fact has emerged as Netanyahu’s most trusted ally, both in terms of his loyalty and in terms of his great political experience, which harks back to the Shas leader’s first ministerial appointment, way back in 1988, the same year that Netanyahu first entered the Knesset.
This will be the broader context Smotrich will face as he seeks to deal with the implications of Netanyahu’s campaign promise to “freeze all mortgages” (though Netanyahu may have partially backtracked on this promise). This idea, Netanyahu’s response to rising interest rates that caused home buyers’ monthly loan payments to increase substantially, stands in opposition to everything Smotrich stands for economically.
Freezing mortgages would, in Smotrich’s view, and also according to most economists, be problematic legally, fiscally and financially. Legally, it would require intervening to change the signed contracts between home buyers and banks; fiscally it would entail billions in budgetary spending to finance what would effectively be subsidised home buying; and financially, it would distort the market mechanisms that price housing and credit according to supply and demand.
What Smotrich will do in the face of these political and economic challenges is anyone’s guess. However, what can be safely assumed is that the outcome, whatever it is, will be a remarkable new phase in a surprising and controversial career that began 17 years ago outside Gaza, where Smotrich the ideologue was arrested, and Smotrich the politician was born.