Using state budget as a cudgel, Netanyahu puts his political future in the red

At 8:25 p.m. on Monday, less than four hours before the midnight deadline for passing a budget or forcing a fourth election in 20 months, Prime Minister Benjamin Netanyahu posted a video announcing he had decided to avoid new snap elections and throwing his support behind a bill to extend the budget deadline till December 23.

It wasn’t an accident that Netanyahu made the announcement at 8:25. Defense Minister Benny Gantz had called a press conference for 8:30, and Netanyahu was eager to upstage the Blue and White leader. It was a childish act, and a desperate one.

While declaring he was acting out of concern for the public good, Netanyahu was implicitly acknowledging defeat in a months-long game of “chicken” he had played against Gantz, a game in which he’d used the possible immolation of the national economy as his threat.

That may seem a partisan reading of Monday’s events, but Netanyahu’s actions since that night have borne it out.

Israel has gone without a state budget since the end of 2019. That’s unprecedented — and terribly damaging. It means the government’s spending isn’t tied to its income. It means money is being distributed by the Finance Ministry to government agencies piecemeal, by fiat, in a way that makes it almost impossible for the Knesset to track where the money is going.

It means, too, that money doesn’t flow where it’s needed without constant intervention by officials and lawmakers, leaving open the possibility that something as simple as a scheduling mistake might delay billions of shekels from flowing to the education system six days before the start of the school year — as happened Wednesday night.

The Wednesday night scheduling error is no minor hiccup. It means a NIS 60 million ($18 million) subsidy for extracurricular programs for underprivileged children mostly in the Ethiopian, Haredi and Arab communities will now be shuttered for the first month of the school year, with its staff unpaid. It means, as the business journal TheMarker reported, that a major enrichment program for Ethiopian Jewish schoolchildren that offers tutoring to over 5,000 students will now go unfunded as schools open next week. It’s the same for dozens more programs. With no comprehensive budget law in place, Israel’s most vulnerable must literally depend on the attention span of MKs to get the help they need.

That the government is voluntarily surrendering its ability to properly manage the public’s finances is disturbing enough; that it’s doing so in the middle of an economic tailspin is downright shocking. The deficit is expected to double by year’s end. The debt-to-GDP ratio is expected to soar from roughly 60% at the start of the year — one of the lower ratios among developed economies — to as much as 77% by year’s end, wiping out the hard sacrifices of 15 years of fiscal responsibility. The government’s tax income is expected to drop by NIS 55 billion ($16.3 billion), or some 15% of the originally projected 360 billion ($107 billion), even as unplanned spending to offset the coronavirus’s economic damage is expected to reach over NIS 81 billion ($24 billion), according to the Finance Ministry.

In other words, double-digit percentages of the economy are being spent and reshaped around the virus crisis — without anyone actually planning the expenditures or even able to tell the Knesset where it’s all going.

We’re not done. One final element to the budget deadlock makes the whole thing much, much worse.

It is simply this: There’s no substantive reason for it that anyone can explain.

Netanyahu and Gantz signed a coalition agreement in May that stipulates the passage of a two-year budget covering 2020 and 2021. Since then, Netanyahu has demanded a one-year budget, and neither Likud ministers nor Netanyahu himself have been able to offer meaningful economic or policy explanations.

The demand has a more prosaic reason: A one-year budget only valid through the end of 2020 allows Netanyahu to pick a new budget fight at the start of 2021, and use that second fight to force new elections, thereby avoiding the galling prospect of allowing Gantz to take his place as prime minister when their rotation comes up in November 2021 — or even to serve as interim PM, a privilege the coalition agreement grants Gantz if Netanyahu topples the government for any reason other than the budget.

That is, the agreement negotiated by Gantz and Netanyahu leaves Netanyahu only one way to prevent Gantz from taking Netanyahu’s seat: by playing deeply harmful games with the state budget. It was an opening Gantz did not seem to believe Netanyahu would have the chutzpah to take.

But Netanyahu took the opening, and reneged on his two-year budget commitment. And he has held out not only since the government was formed in May, but even under Monday’s election-delaying compromise, which merely continues delaying the budget’s passage until December.

It must be said: Though Netanyahu is the side reneging on his commitments, Gantz, too, is refusing to pass a budget by holding firm throughout these past months on his demand that Netanyahu fulfill the coalition agreement and pass a two-year budget. Gantz has made two arguments: first, that as the deadlock nears the end of the year, a lone 2020 budget makes less and less sense; second, it is in Israel’s long-term interest, even at the cost of more time without a coherent state budget, not to allow Netanyahu’s holding the budget hostage to personal political jockeying to bear fruit.

Be that as it may, Gantz’s position also conveniently helps assure he might actually serve as prime minister one day, even if only for a short while.

The harm and the anger

Netanyahu took his demand for a one-year budget to the very edge of the cliff, daring Gantz to stick to his guns even at the all-but-certain prospect of electoral dissolution.

Gantz never blinked.

That fact might have something to do with Gantz’s famous equanimity, the calm demeanor that was so roundly and repeatedly mocked during last year’s election campaigns, but which was also part of his unflappable management style when he served as chief of staff of the army.

Then again, it might have something to do with the fact that Netanyahu left him nothing to lose. Gantz has polled in recent weeks at a dismal 8-11 Knesset seats. If Gantz had given in, would even those seats have stuck with him? The choice Netanyahu left him was stark: Bend to the Likud leader’s will, pass a budget solely for 2020, and consign himself to political oblivion when the 2021 budget talks inevitably fail in March and an election is subsequently held in June. Or stick to his guns, demand a two-year budget even at the risk of the Knesset’s dissolution on Monday and an election in three months, but have a decent chance of holding on to enough seats to return to the Knesset, and maybe — maybe — even call Netanyahu’s election bluff and come out stronger for it.

Yes, it’s confusing. The upshot: Netanyahu was so busy robbing Gantz of alternatives that he left defiance to the very end as Gantz’s best plan of action.

Gantz now has a long string of victories in his battle to hold Netanyahu to his commitments. But in this latest instance, it was Netanyahu who handed Gantz the win.

In the process, Netanyahu also discovered how badly he had stumbled, and how betrayed even his own voters now feel.

Netanyahu was forced to retreat from the precipice on Monday because it was getting difficult, even among his supporters, to ignore the fact that he had embarked on a political maneuver without regard to how damaging it was to Israelis’ well-being.

The lack of a budget imposed some painful new realities on Israeli households. Working-class families lost the after-school day care programs they needed to keep their jobs. Schools cut summer day camps, and some of the country’s largest youth-at-risk programs sent their staff to protest outside the Knesset as they shut their doors. Even the army has faced billions in budget shortages, and it plans to lay off officers.

There are political costs for such a disregard for the public’s well-being.

A Monday poll by Channel 13 asked Israelis who they would hold responsible if the day ended with snap elections. Fully 59% said Netanyahu. Just 20% said Gantz.

Asked what drove Netanyahu’s behavior, 50% cited his attempts to flee his legal troubles by hunkering down in the prime minister’s chair. Just 18% picked the option of “the good of the country.” (The remainder: 14% cited “ideological gaps with Blue and White,” 10% didn’t know and 8% offered an answer different from the ones offered.)

One can’t reach such numbers without the disaffection reaching deep into Netanyahu’s voter base.

The fact that he has held the state budget in suspended animation for months in the service of his political maneuvers has helped drive a pivot of support on the right to Naftali Bennett’s Yamina party, which has risen astonishingly from a six-seat showing in May to as many as 19 seats in polls over the past month. In that period, Likud’s poll showing dropped from as high as 40 seats to as low as 27.

Even those who stayed loyal to Likud in recent weeks have grown restless.

On Sunday morning, with one day left to the budget deadline, a Likud official put out a notice on the WhatsApp group for Likud MKs, explaining to the party’s lawmakers that everyone was required to show up for the budget delay vote the following day. “It’s [an amendment to] a Basic Law, so we need to pass it with 61 [votes],” the official explained. The MKs were asked to confirm they had received the message.

That is, even as Netanyahu took the country to the precipice, he made sure he had the votes in place to step back from the brink at the last minute.

It was then that MK Kati Sheetrit gave voice in the group to what everyone else was thinking.

“Confirmed,” she wrote to the official, then added: “I hope everyone shows up and spares us these unnecessary elections. The grassroots are very angry at us! I know the [political] situation is very difficult, but our situation in the field is very bad.” (A screenshot of the comments was leaked by someone in the group to Channel 12.)

On Monday night, Netanyahu caved. He couldn’t risk an election when so many Israelis blamed him for the vote; blamed him, in fact, for the broader deadlock. After all, it wasn’t just the budget crisis that drove voters to Bennett. Polls show most Israelis believe the government stumbled in its handling of the second wave of the virus and in its handling of a coronavirus rescue package amid the sharp economic downturn. The budget deadlock is seen by many as a symptom of a broader neglect.

Generous to a fault

Since his climb-down, Netanyahu has tried to show he is a chastened man — but without, even now, advancing the budget the country badly needs. He seems to be attempting to find a middle path in which he funds piecemeal the many missing programs and needs of all those he has angered, while still avoiding passing a budget that could force him out of the prime minister’s chair.

On Tuesday he issued two announcements carefully tailored to address the anger of his constituents.

“I have decided with Finance Minister Israel Katz and Education Minister Yoav Gallant to dedicate NIS 300 million to funding after-school daycare subsidies till the end of the coming school year. We will continue to help you, the parents, with [efforts to] encourage employment and lower the cost of living, especially while we’re dealing with the coronavirus crisis.”

No staff work preceded the 3 p.m. announcement. No budgets official had raised the issue in the Knesset. Netanyahu seemed to have been surprised at how badly he was polling — at how comprehensively he was singled out for the blame — and to have gone back to his staff and asked them where he’d gone wrong.

As the Times of Israel has already noted, the after-school daycare subsidy is one of the most tangible ways in which large numbers of working-class families were squeezed by the budget deadlock, a squeeze that began long before the pandemic.

Later Tuesday he issued yet another statement. “I’m speaking now to the finance minister about creating new programs, including a negative income tax to encourage and compensate going out to work. And we have more programs on the way,” he promised.

It may have taken some shocking poll numbers and a humbling defeat at the hands of Gantz to penetrate the fog of political war, but Netanyahu had finally noticed those struggling Israelis, and was now determined to ease their economic pain. Netanyahu had rediscovered the working class.

Monday night’s election delay bill included NIS 11 billion in new funding to government ministries to close some of the most painful gaps opened by the lack of a budget. Some 3.3 billion shekels are being handed to the military, 1.7 billion to a broad array of nonprofits and charities, especially Haredi and religious-Zionist organizations, and hundreds of millions more for cash-strapped yeshivas.

The funds are meant to quell anger at him in those communities and ensure that Haredi parties can continue to support him if an election looms — Haredi parties that have grown increasingly angry at Netanyahu as their yeshivas, heavily dependent on government subsidies at the best of times, sink perilously into the red because of the budget freeze.

There are two vital points to be made about this newfound largesse. First, Netanyahu is showing no signs of seeking to pass a coherent state budget through 2021 — but only to mitigate the most painful fallout from the lack of one. He still hopes to have his cake and eat it too.

Netanyahu’s dilly-dallying with the budget has cost him more politically — because it has cost ordinary Israelis more in real terms — than all the corruption investigations and intemperate politicking in all his long career

Second, not to belabor the point, but the lack of such a coherent budget grows ever more dire for the country’s near-term financial well-being as the expenditures pile up. It isn’t clear how each new expense will be paid for. None of the new spending is part of any consistent policy to encourage new growth in the virus-battered economy.

That could yet have dire consequences, the soft-spoken governor of the Bank of Israel, Amir Yaron, warned in an interview this week with the Calcalist business journal.

“The further we get from an orderly budget process — like the extra-budget [spending] — the markets will place more emphasis, even a lot of emphasis, on governance processes” to determine whether Israel is a good investment, he warned.

That is, the markets that determine how much investment flows into the Israeli economy will look at how decisions are being made by the politicians — the very politicians who have ensured a political and fiscal deadlock for the better part of two years now.

“Financial markets don’t behave in a linear fashion,” Yaron said. “If the sense takes hold in the markets that our budget conduct isn’t responsible,” the change for the worse is liable to come “suddenly, when we don’t expect it.”

No forgiveness yet

Netanyahu is trying to claw his way back into the good graces of constituents he has hurt.

He may yet restore that support by rehabilitating the economic prospects of the families he’s ignored for many long and painful months.

But political loyalty is a funny thing. Voters who are unconcerned or even entertained by the emotional anxieties he elicits from the left are not so blasé about their own well-being. In the end, Israelis can forgive a great deal from their politicians if their policies are successful and the public is well served. Netanyahu’s dilly-dallying with the budget has cost him more politically — because it has cost ordinary Israelis more in real terms — than all the corruption investigations and intemperate politicking in all his long career.

A Thursday morning poll suggested that basic reality hasn’t changed, at least not immediately, with his new raft of spending. The poll produced by Panels Politics for the Maariv news site gave Likud just 28 seats. More importantly, his religious-right coalition gets just 60 seats, one short of a Knesset majority. Needless to say, even that rightist coalition is no longer guaranteed, with Yamina (17 seats in the poll) refusing to say in recent weeks it will support him in the next election.

According to every official and political faction one would care to ask, passing an orderly budget covering the four months left to 2020 and — as Bank of Israel Governor Yaron insisted this week — 2021 is the only responsible thing Netanyahu could do at this point.

It’s also quickly becoming the only politically viable course left to him. He’s already tried everything else.