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Interview

Cost of living can be solved by right-wing economics ‘with humane face,’ says key MK

Alex Kushnir, the Yisrael Beytenu MK who chairs the Knesset Finance Committee — overseeing the budget, taxes, customs and banking — discusses economic inequalities and solutions

Carrie Keller-Lynn

Carrie Keller-Lynn is a political and legal correspondent for The Times of Israel

Alex Kushnir, head of the Finance Committee, leads a meeting in the Knesset, February 28, 2022 (Yonatan Sindel/Flash90)
Alex Kushnir, head of the Finance Committee, leads a meeting in the Knesset, February 28, 2022 (Yonatan Sindel/Flash90)

As chair of the Knesset’s powerful Finance Committee, Yisrael Beytenu MK Alex Kushnir has a direct view into one of the most discussed issues in Israeli homes and public spaces alike: the state of the economy.

The cost of living is soaring, as inflation passes 5% and housing prices rose 17.8% in the past year alone. Last December, Israel’s commercial capital Tel Aviv was crowned the world’s most expensive city.

Salaries are not keeping pace. The average Israeli worker took home less pay than in 64% of OECD countries in 2021, according to OECD data. The roughly 10% of Israelis who are in the country’s booming tech industry earn a much higher average wage, contributing to the country’s growing inequality.

The 2022 World Inequality Report, produced by a lab jointly housed by the Paris School of Economics and the University of California, Berkeley, found that the top 10% of Israelis earn 19 times more than the bottom 50%, making Israel one of the most unequal among high-income countries.

In line with this, a survey released by the Israel Democracy Institute on Tuesday found that the economy is the most pressing issue for November’s upcoming election, with 31% of respondents saying the economy is the most decisive issue for casting their vote.

Born in Soviet Ukraine and immigrating to Israel in 1992, Kushnir, 43, is a three-year Knesset veteran sitting in the heart of the economic question. In his role as the Knesset Finance Committee chair, Kushnir runs the parliament’s main body for overseeing state budgets, taxes, revenues, customs and import duties, banking, and a host of other unsexy functions fundamentally important to Israel’s economic machine.

Knesset Finance Committee chair Alex Kushnir at Tel Aviv’s Hilton Hotel, August 29, 2022. (Carrie Keller-Lynn / The Times of Israel)

Sitting down with The Times of Israel on Monday, Kushnir said that the key to solving the cost of living lies in his Yisrael Beytenu party’s right-wing economic philosophy: reducing regulation, lowering barriers to competition and imports, and improving key infrastructure that enables the economy to function.

However, Kushnir is a lawmaker in a state with a strong socialist past. While he supports reforming the state-funded healthcare system to improve its efficiency, he is not pushing a dismantlement of key welfare state infrastructure. In fact, he takes pride in his party’s push to increase benefits for disadvantaged members of society.

Kushnir calls this approach right-wing economics with a “humane face,” but in line with policies pushed by his party’s leader, Finance Minister Avigdor Liberman, this humane face only smiles on citizens who either participate in the workforce or are unable to do so. Like Liberman, Kushnir is critical of the state’s large ultra-Orthodox population, sitting at 13% but underrepresented in the workforce and in secular studies.

In Kushnir and Yisrael Beytenu’s view, there is no quick fix to the current cost of living crisis. But in their telling, supporting some members of the state along with the fundamental breakdown of state barriers to competition will start to pave the path toward relieving economic pressure.

Kushnir sat down with The Times of Israel Monday to discuss his take on Israel’s ongoing cost of living crisis, why he doesn’t want to lower taxes despite running an operational surplus, and his Yisrael Beytenu party’s interpretation of right-wing economic policies. The conversation was conducted in Hebrew and edited for brevity and clarity.

The Times of Israel: Let’s start at the heart of the current debate. Why does Israel have a cost-of-living issue and how do we fix it?

Alex Kushnir: Israel really is more expensive than other OECD countries, by about 37% percent as of 2021. It wasn’t always like this. In 2009, the beginning of [political rival former prime minister Benjamin] Netanyahu’s leadership, we were closer to OECD countries with respect to prices. But in this period, from 2009 to 2021, they didn’t make reforms and changes that could have adapted the economy to the changing situation.

First off, Israel is isolated. Our supply and logistic chains are through the sea or air. There are almost no land borders so we’re almost an island nation in this regard. And in addition to this, the country’s population grew by 2% every year. This is pretty abnormal among developed countries.

So on one hand, we have limitations on import and export logistics, and on the other, demand constantly increases. We have gaps on the demand side. As a result of this, prices increase. This is the macro picture.

In order to take care of this problem, Israel needs to be very open to imports and to competition. And this is exactly what didn’t happen.

Finance Minister Avigdor Liberman speaks during a press conference at the Finance Ministry in Jerusalem, August 17, 2022. (Yonatan Sindel/Flash90)

In the past, before we came into power, no reforms were made to open the market to competition. On the contrary. They put in a lot of blocks to imports and gave monopolies too much power.

You see the banking sector. We have basically two big banks that control the market and three other smaller ones. They aren’t exactly in competition.

For the first time in about 40 years, the first new bank came into Israel, called ONE ZERO. And that’s because of reforms we made.

If you look at the food market, you have six to seven companies, or large producers, or large importers than enjoy monopolistic profits because the state helps them. How does it help them? It puts quotas or tariffs on imports. This too we were able to change.

The state also puts barriers with regulations. We invent unnecessary regulation. For example, if you want to bring a baby carriage here, it’s not enough that it has an American or European standard, it also needed an Israeli standard.

All of these things we took care of in a year, and we hope it will lead to lower prices.

We have a lot of other problems. One of our biggest ones is exclusive importers. It enforces the monopolistic power of that importer and we want to enable everyone to compete.

In the past years, we didn’t invest enough in infrastructure. Roads, telecommunications — and because the population is always increasing, if you want to keep pace, you have to adapt your infrastructure at least to the same level. Thus, there are really big structural failures and to fix them will take a lot of time, a lot of effort, and especially, a lot of political courage.

Some say that Israel’s state economy is strong, with well-managed budgets, good trade balances, and over-taxation, but the people’s economy is weak, as evidenced by high cost of living and lower wages. It sounds like this is the situation you described. Is this fair to say, and why so?

It’s true that the Israeli citizen’s purchasing power is lower than the purchasing power of a citizen in many OECD countries. It comes from the same failures that we said before, three central ones: over-concentration of the economy, over-regulation, and lack of infrastructure. These three things lead to the situation in which the economy is not enough for the community. It is growing, it is getting bigger, especially because of the tech sector, but it’s not translated into consumer purchasing power.

Illustrative: The DLD Tel Aviv Digital Conference, Israel’s largest high tech gathering, September 27, 2016. The tech industry is the among the highest paid in Israel, with an average salary of NIS 23,375 ($6,719) per month. (Miriam Alster/Flash90)

And that’s our mission, to do that [translation]. And it’s by opening the market to competition, by reducing regulation. There’s an [index] called “doing business.” Israel is really low on this [index], and we need to raise our standing so it would be comfortable for people to do business here.

When these things happen, the strength of the economy will be translated into consumer power.

You mentioned that tech is part of Israel’s economic growth engine. Are you in the camp that says part of the solution to the cost of living is to funnel more people into high-paying jobs in the sector?

I think yes. Economics has one very simple rule: you have to choose your competitive advantage. If you analyze the Israeli economy, there is no doubt that tech is one of our competitive advantages, together with military industries.

The state is not bad at facilitating [the sector’s growth], with grants and tax breaks, but what worries me at the moment is whether we will have enough manpower in the future in order to support the demand in this industry.

Look at the educational results of Israeli schools, according to international standards. And you’ll see that despite the high investment in education — which has the State of Israel’s biggest budget, more than the Defense Ministry this year — the results are not good. We are in the bottom of the OECD; in some sectors we are at third-world levels. This doesn’t connect with the needs of the market.

Ultra-Orthodox students study at the Kamenitz Yeshiva, in Jerusalem on September 2, 2020 (Yonatan Sindel/Flash90)

We also have another big part of the public that doesn’t study core subjects [referring to the ultra-Orthodox community]. At the end of the day, it’s not just their private issue, because at the end of the day, it affects everyone. We’re raising tens of thousands of children who, at the end of 12 years of study, have never had even an hour of English, computers, and physics. The chance of integrating into the workforce is nearly zero.

The economic burden moves to those who work and pay taxes.

With the state economy strong and cost of living so high, and with a current budget surplus, should taxes remain high?

When we talk about zero deficit, we are talking about the operational balance. We forget that we have a national debt that is more than NIS 1 trillion. And that means that every year the State of Israel pays NIS 160 billion on its debt, within which NIS 43 billion is just interest.

And it’s created a situation in which we are always in debt. Our expenditure ceiling in a national budget is, roughly, NIS 450 billion. Consider that NIS 160 billion is just debt. If that didn’t exist, so much money would be freed up.

What we’re trying to do right now with the regular income is exactly that, first of all to cover the debt and it wasn’t what happened until this point.

We raised the benefits for the elderly and handicapped, we raised soldiers’ salaries, we gave for the first time benefits to working families with children in elementary school. But we have to also protect our coffers and make sure the national debt decreases.

Soldiers of the 7th Armored Corps Brigade during training in central Golan Heights, August 29, 2022. (Michael Giladi/Flash90)

During the coronavirus period, we got to about 70% debt ratio, which is really high. We don’t know what will happen in the future… pandemics and war. We have to be ready as a country to deal with it. So the correct policy is anti-cyclical. When the economy is high, you need to pull back. When the economy is poor and the public needs help, you have to let the money flow.

Yisrael Beytenu is trying to run as “the real right,” but your vision is still different from what in the US or Europe would be considered “right-wing” or “free market” economics. You support continuing some of Israel’s socialist vestiges, such as national healthcare and benefits, and recently pushed to support paternity leave. How do you define your economic lines?

We believe in free and liberal economics with a humane face. I want to help people who can’t take part in the workforce, such as the elderly or handicapped. But I don’t want to help someone who can take part in the workforce and doesn’t do so by choice.

Yes, Israel started as a socialist country and its economy is slowly going through a transformation. We have to incentivize it.

Unfortunately in the past years, we’ve gone backwards. I call it “socialist populism,” and it includes so-called right-wing people like Netanyahu and his crew, and people from the left like the Labor party, who all the time say “benefits” and “subsidies,” and don’t talk about the fact that at the end of the day, someone has to pay for them.

Benjamin Netanyahu speaks to reporters outside the Prime Minister’s Office in Jerusalem, August 29, 2022. (Screenshot: Telegram)

The government should interfere as little as possible [in the economy]. Of course there are [citizens who need help], and we have to take care of them.

But national health insurance, social security, you’re not going to touch them? And they’re considered elements of a welfare state.

I think that the time has come for the health system to also go through a change. Especially because there is a structural failure, in that the Health Ministry is on one side the regulator and on the other side, runs hospitals. So, there is a built-in conflict of interest. This is something that hurts the health system.

The Health Ministry’s budget is very large. [In the outgoing government] we increased it by another NIS 2 billion. Yet you see that people wait for months for an appointment, especially outside of major population centers. All of this indicates that the system is not efficient enough.

But along with this, you can’t say that our health network wasn’t what saved us during the coronavirus pandemic.

The US also has a social security system. It’s an issue of level. At what level do you want the state to interfere and provide insurance. It’s an issue of level and price.

But the systems aren’t optimal and need a reset.

Your positions speak to many voters who care about free market reforms and your party is trying to position itself as the “real right.” Why do you think that Yisrael Beytenu still has the reputation of being a party for Russian immigrants?

Maybe because the head of my party speaks with a Russian accent. If you looked backwards, until the middle of the 1990s, all of our prime ministers and presidents spoke with a Russian accent.

Liberman has lived here almost 50 years. He’s completely Israeli. Yes, he speaks Hebrew with an accent, so what? We are a state built by immigrants for immigrants. To be an immigrant here is not a source of shame.

Just look at what we did this year. All of our reforms touched the part of Israeli society that works, pays taxes, serves in the military, and participates in this enterprise called the State of Israel.

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