After Citizen Protests, Israel Approves Austerity Budget

Even before the new government’s first budget was approved, 12,000 Israelis took to the streets Saturday night in a show of anger reminiscent of the vast social protests that rocked the nation in the summer of 2011. At that time, record crowds complained of the high cost of living — and eventually many voted their cause and expected the new leadership to respond.

Instead, the government announced that a large deficit required higher taxes and less spending.

The austerity measures are intended to help close a 2012 deficit of about $10.5 billion, which was 4.2 percent of the gross domestic product and double the amount that had been projected.

“Today, given the State of Israel’s national needs and the global economic crisis, it is important for the State of Israel to show that it is passing a budget,” Prime Minister Benjamin Netanyahu said on Monday at the start of the cabinet meeting. He announced that a compromise had been reached on the fiercely contested military budget, cutting it by $840 million.

But because voters had demanded a different budget blueprint, anger was focused less on Mr. Netanyahu, whose previous government created the deficit, than on Yair Lapid, the political rookie and former television host, who was recently elected and is now finance minister.

Mr. Lapid’s centrist Yesh Atid Party stunned the political establishment by placing second in the January election. Its success was widely attributed to the way that Mr. Lapid rode the wave of the social protest movement, campaigning on a slogan of “Where’s the money?” and championing the cause of Israel’s struggling middle classes.

But this budget includes, among other things, an increase of 1.5 percentage points in the personal income tax and of one point in the corporate tax. The value-added tax is set to rise to 18 percent from 17 percent, child allowances are to be sharply reduced, and subsidies for after-school programs for children under the age of 9 will be canceled. Mr. Lapid has noted that with the ultra-Orthodox political parties sitting in the opposition after being part of most government coalitions for the last three decades, financing for yeshivas has also been reduced.

The cuts hitting the public in the pocket appear to contradict the goals of the social protest movement, which began with a tent encampment in Tel Aviv to protest housing prices and peaked one night in September 2011 when half a million Israelis demonstrated against the high cost of living.

Mr. Lapid’s critics have argued that he has fallen into the groove of old politics, shying away from more sweeping structural changes.

Shelly Yacimovich, the leader of the Labor Party and head of the opposition, sent a letter to government ministers urging them to oppose the new budget. The economic program, she wrote, according to a copy posted on her party Web site, “was written by the previous government. Its clauses are very well known to many of us, for they were written in the near and distant past by the same Finance Ministry officials.”

Prof. Avia Spivak of the department of economics at Ben-Gurion University of the Negev, an early supporter of the social protest movement, said he agreed with those who said Mr. Lapid’s budget was “more of the same.”

The tax increases could have been done more progressively, Professor Spivak said in a telephone interview, for example, by increasing corporate taxes or by considering reintroducing an estate tax that was canceled in 1981 during a period of high inflation. The government could have raised the corporate tax by three percentage points, he said, “without seeing an exodus of companies abroad.”

Professor Spivak was a co-chairman of an academic committee that advised the grass-roots leaders of the social justice movement of 2011. He said he had no doubt that Mr. Lapid was voted in on the heels of the protest and that he was not fulfilling the protesters’ expectations.

“If he had had more time, he could have been more creative,” Professor Spivak said, adding that Mr. Lapid’s lack of experience made him reliant on Finance Ministry staff and outside experts who mostly presented him with familiar ideas.

Now that it has been approved by the government, the budget must be presented to Parliament in June and passed by July, and it is expected to be adopted, albeit with possible amendments, because the parties in the governing coalition hold a majority of seats. While overall spending would increase year to year, the deficit ceiling would be reduced to 3 percent of gross domestic product from 4.65 percent.

Although Israel’s economy is regarded as relatively strong and stable, having weathered the global economic downturn, the growth of recent years has directly benefited a small percentage of the population, living costs are high — perhaps because of a lack of competition, experts say — and the gap between the rich and the poor has been increasing.

Until a few days ago, Mr. Lapid had communicated with the public solely through Facebook since taking office. But feeling the popular heat, he broke his silence last week with a news conference and a television interview.

Mr. Lapid argued that for once, it was not only the middle class that was bearing the brunt, but also wealthier Israelis who would lose child allowances altogether and pay increased taxes on luxury goods.

In the interview that ran on Friday on Channel 2, Mr. Lapid said of those rallying against him: “Who are you demonstrating against? Are you demonstrating so that you can lose your jobs, so that the economy will collapse? You are demonstrating against yourselves.”

Yesh Atid won 19 seats in the 120-seat Parliament, positioning Mr. Lapid as a power broker. By taking on the Finance Ministry with no political experience or economic expertise, many analysts here said, he risked his popularity and exposed himself to criticism. Others said that the job could prove a valuable test of leadership, but that it was too early to tell how his political fortunes would fare.

Mr. Lapid said the pain would be short-lived. In a Facebook post on Sunday, he wrote that he was going through “stormy days,” but that the budget cuts were a necessary first step. He continued, “After that, the reforms will begin — all those things that will be done to bring down the cost of living and to improve the life of the working person.”

Article source: http://www.nytimes.com/2013/05/15/world/middleeast/after-citizen-protests-israel-approves-austerity-budget.html?partner=rss&emc=rss