As economy dangles over a precipice, Netanyahu and Gantz bicker and delay

A fight over whether to pass a one-year or a two-year budget has an easy solution, yet the bill remains stuck and Israelis continue to suffer

Haviv Rettig Gur

Haviv Rettig Gur is The Times of Israel's senior analyst.

Prime Minister Benjamin Netanyahu, right, and Defense Minister Benny Gantz lead a weekly cabinet meeting, at the Foreign Ministry in Jerusalem on June 7, 2020. (Marc Israel Sellem)
Prime Minister Benjamin Netanyahu, right, and Defense Minister Benny Gantz lead a weekly cabinet meeting, at the Foreign Ministry in Jerusalem on June 7, 2020. (Marc Israel Sellem)

At least 800,000 Israelis are unemployed, with more added to the rolls each day. Over 1,000 virus carriers are now being discovered daily as the government contemplates drastic new lockdown measures. A NIS 100 billion ($29 billion) emergency recovery and stimulus package pieced together by panicked politicians is set to begin disbursement this coming week, adding to a NIS 80 billion ($23 billion) one launched two months ago. Both offer only a short-lived resuscitation for the faltering economy as 2020 drags through its seventh month without a comprehensive state budget.

The recovery spending may be a desperately needed cushion for tens of thousands of businesses and hundreds of thousands of newly unemployed, but it won’t deal effectively with the fallout from the virus or replace the careful rebalancing of national priorities that the country needs and that only a full-fledged budget law allows. A government signing checks isn’t a sustainable model for stemming the bleeding and managing an economic rehabilitation.

Yet that desperately needed state budget bill isn’t advancing. It’s stuck in a political stalemate that saw its presentation to the government delayed twice over the past week. It was originally scheduled to be presented to the cabinet last Thursday, July 9. That was pushed to Sunday, then pushed again to next Thursday. Officials refused to commit over the weekend to July 16 as the new deadline.

The delays are not in themselves a crisis. A week’s delay is no terrible setback for a stupendously complex state budget bill reaching into the NIS 400 billion ($116 billion) range. The trouble with the delay is its cause: Treasury officials are done hashing out the numbers, but Prime Minister Benjamin Netanyahu and Defense Minister Benny Gantz don’t trust one another enough to bring an agreed-upon bill to a cabinet vote.

What they want, and why

Netanyahu is demanding a one-year budget to cover the immediate problems presented by 2020, with a separate budget law for 2021 to be passed by February. Gantz is insisting on a two-year budget, as stipulated by the coalition agreement between Likud and Blue and White signed in April.

Prime Minister Benjamin Netanyahu (center) and Finance Minister Israel Katz (right) with representatives of self-employed Israelis and small business owners at the Prime Minister’s Office in Jerusalem, July 10, 2020 (PMO)

Netanyahu has a point. Finance officials are unanimous in the view that a two-year budget would make it harder to put the nation’s finances in order amid the pandemic. The future is too clouded to see past the second wave of the virus into the fall of 2020 — never mind the fall of 2021. Without a better picture of the virus’s spread, of the likelihood of a third and fourth wave, of the timetable for a vaccine, of the global economic situation writ large, and of the economy’s broader resilience in the face of social distancing measures, preparing a 2021 budget in the middle of 2020 is an exercise in frustration that will only delay the work required to turn around a more appropriate 2021 bill in six months’ time.

Gantz has rejected the argument repeatedly, even after the Finance Ministry’s budgets chief Shaul Meridor, Director General Keren Terner-Eyal and Accountant General Roni Hizkiyahu all concurred with Netanyahu.

But Gantz has a point too.

Gantz’s problem with the one-year budget is technical — but also fundamental. The coalition agreement states that if the government is toppled before Gantz gets to serve as prime minister, then Gantz takes over automatically as premier for the duration of the interim government until election day. It’s a stipulation meant to ensure Netanyahu doesn’t topple the government early to prevent Gantz from becoming prime minister, as it would hand Gantz the premier’s chair in such a scenario. But that automatic rotation is canceled, the agreement states, if Gantz himself topples the government by failing to vote for the state budget. Reducing the budget law from two years to one grants Netanyahu an exit ramp from his agreement; he need only pick a fight with Gantz over the 2021 budget.

Even if Gantz believes the finance officials, he’s suspicious at Netanyahu’s sudden good fortune.

Defense Minister Benny Gantz (L), Health Minister Yuli Edelstein (C) and Maj. Gen. Uri Gordon (R), head of the the IDF’s Home Front Command, tour the Home Front Command headquarters on July 7, 2020. (Ariel Hermoni/Defense Ministry)

So, too, are Netanyahu’s allies in Likud and in the Haredi parties.

On Thursday, Shas leader Aryeh Deri, fearful of new elections that might delay the budget law, and with it delay desperately needed funds for Haredi seminaries and schools, reportedly shouted at Netanyahu during a call that he’s “pushing for new elections” and hung up on him. It was an unusual sign of tension between Netanyahu and his Haredi allies, made even more significant by the fact that Shas leaked the report about the call.

The trouble with an election

Gantz doesn’t want an election. If he fails to survive politically until November 2021 and take his seat as prime minister, his political legacy will be short and ignominious: he’ll be the man who broke up the most successful anti-Netanyahu coalition in a decade, and for what? But if he survives and becomes premier, he instantly transforms himself into the most viable contender to rally the center and left for the next election cycle – and vindicates the hard political compromises he made to sit in a government with Netanyahu. He’ll be the man who at long last, with infinite patience and political sacrifice, finally unseated Netanyahu.

Netanyahu doesn’t want an election. He’d win, according to all polls since April. Israeli voting patterns show a consistent advantage to force of habit. A new MK who survives into their second term is quite likely to survive to a fifth. Most don’t survive that first reelection. It’s not very different with prime ministers; Ariel Sharon won a second term in 2003, and his popularity grew steadily even as his policies changed sharply.

Yet victory in an Israeli election is a function of coalition-building, not just personal success. Netanyahu’s Likud might win 36 seats (according to a Channel 12 poll last week), more than twice the next-largest faction, but a right-wing coalition as a whole wins just 64 seats, not very far ahead of the 61-vote minimum majority in the 120-seat Knesset required to win the election.

Protesters demand government action at a demonstrations in Tel Aviv’s Rabin Square against Israeli economic policy in the wake of the economic crisis triggered by the pandemic, on July 11, 2020. (Miriam Alster/Flash90)

All forecasts say Israel’s economic situation is only going to worsen in the coming months, and Netanyahu doesn’t want a referendum on his rule just when that crisis may be peaking.

The solution

How do you square the circle? How does one secure for Gantz the assurances given to him in the coalition agreement while allowing the one-year budget urged by the economists?

The answer is simple, and has already been proposed to Netanyahu by Aryeh Deri: As the one-year budget bill advances, pass another law that gives Gantz the interim premiership — the same protection he has if Netanyahu topples the government for a non-budget reason — if the 2021 budget fails.

Gantz, too, has a simple solution, though it may create problems down the road. Pass the two-year budget on paper, but with the stipulations and requirements of the 2020 budget, then immediately set to work passing an amendment to correct the 2021 portion of the law. That way, the budget has passed, the political crisis avoided down the road, and a second 2021 bill can put in place what an original 2021 budget law would have instituted.

The technicalities here can be significant. A budget law for 2021 that doesn’t reflect appropriate policies for 2021 could hurt Israel’s credit rating. And as 2020 teaches, it’s never wise to rely on any new budget law passing easily through the Knesset. Deri’s solution is probably the wiser economically, even if Gantz’s is more likely to offer political stability.

Protesters scuffle with police after a demonstration calling for financial support from the government amid the coronavirus crisis in Tel Aviv on July 11, 2020 (Miriam Alster/Flash90)

Why, then, is the fight continuing?

Why is Blue and White refusing the urging of the treasury, and even of the wholly independent Bank of Israel, for a one-year budget, and declining, too, the Deri-proposed (and Haredi-backed) change to the interim government law?

“Netanyahu is pushing with all his might for elections,” a Blue and White official told Channel 12 late last week. He called the recovery package a populist stand-in for the budget law that proves elections are coming – “throwing money at citizens in order to break up the government by March.” And he noted, correctly, that “even the Haredim know Netanyahu’s pushing for elections,” or at least suspect as much.

Likud retorted on Thursday: “All economists agree that Israel needs a one-year budget now, and immediately. While the prime minister works around the clock to create this budget alongside the coronavirus financial aid package, Blue and White is torpedoing it for political reasons.”

Not quite. Likud’s complaint was true until Deri brought his proposal to the table.

Plenty of time?

Why is Netanyahu sticking to his guns and refusing to offer the stabilizing concession that Gantz is demanding — a concession, after all, that would merely see him fulfilling his written commitments to Gantz in the coalition agreement?

Shas party chairman and Minister of Interior Aryeh Deri (center), Prime Minister Benjamin Netanyahu (right), and Blue and White leader Benny Gantz, at the Knesset on November 4, 2019. (Hadas Parush/Flash90)

Could it be that Netanyahu simply wants Gantz to stay suspicious, to keep him permanently off-guard? Netanyahu’s political needs didn’t create the one-year budget, but he’s not above taking advantage of it to play another round of petty politics.

And why is Gantz willing to push ahead with a two-year budget, which is politically sensible but, say all the experts, bad economic policy at a time when the nation needs good economic policy more than ever?

Negotiators between Likud and Blue and White say neither side wants elections. But each is willing to delay a desperately needed budget law — not so they can debate looming cuts to welfare or defense, nor over fears of a runaway deficit, but as a political maneuver. They have time, they feel. After all, the deadline for a first Knesset vote doesn’t come up till August 25. That’s six weeks away.

Meanwhile, the Bank of Israel last week updated its forecast for 2020 to negative 6% growth, the steepest shrinking of Israel’s economy in the country’s history.

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