Netanyahu’s budget could jeopardize his economic legacy in Israel

For decades, Benjamin Netanyahu, the Israeli Prime Minister, has been a champion of the economic doctrine of the free market. As finance minister 20 years ago, Netanyahu was hailed by Milton Friedman, the godfather of neoliberal economics, as he slashed social benefits, curtailed public spending, accelerated privatization and made the promoting the country’s beloved technology industry.

In his autobiography last year, Mr Netanyahu spent three chapters explaining how his tenure at the Treasury saved the economy from an ‘antiquated semi-socialist swamp’, in part by cutting off handouts to ultra-conservative Jewish Israelis , who often shun the labor market for religious study, and pushing more of them into work.

Netanyahu’s new national budget, which was passed by Israel’s parliament on Wednesday morning, threatens to upend that legacy.

Bowing to the demands of his ultra-Orthodox partners in a fragile coalition government, Netanyahu has massively increased state funding for private ultra-Orthodox schools, seminaries and other religious and social projects, as well as ministries led by Israeli settlers in the occupied West Bank.

Netanyahu said the increases were necessary to ensure parity between religious and secular school systems. But critics said his decision would cause long-term harm to Israel’s economy because it bolsters an ultra-Orthodox school system that largely fails to teach math, science and English, leaving children ill-prepared for modern work.

Mr Netanyahu’s stance on the issue has caused a storm in Israel, escalating tensions between ultraconservative believers, who want to preserve their self-reliant way of life, and their secular neighbors, who argue that their taxes are growing. more spent on a section of the population that provides little in return and largely avoids military service.

The debate has led a secular TV presenter to describe the ultra-Orthodox as ‘bloodsuckers’, while religious leaders have said their communities’ voluntary work for charities and emergency medical groups is not was not appreciated.

And the furore over the budget has also undermined Mr Netanyahu’s free market credentials amid accusations that he makes economic decisions based on political expediency.

“It seems that the Netanyahu of 20 years ago and the Netanyahu of today have opposing values ​​and economic agendas,” said Professor Karnit Flug, former governor of the Bank of Israel and today vice president of the Israel Democracy Institute. Research group based in Jerusalem.

Ultra-Orthodox Jews, or Haredim, are the fastest growing part of Israel’s population: they currently make up around 13% of citizens, a proportion that is expected to triple within four decades. Economists say the increase will cost Israel billions of dollars — unless the largely autonomous ultra-Orthodox school system better prepares haredi children for the world of work, and more haredi adults are encouraged to work instead of study in seminaries.

Israel’s new budget does the opposite. It increases annual state funding for seminaries, or yeshivas, and stipends for students at those institutions by at least 50%, or more than $160 million, according to an assessment by Berl Katznelson analysts. Center, a policy research group. And that more than triples annual state funding for Haredi schools, an increase of more than $400 million, according to the same analysts.

Asked to comment on the article, the Prime Minister’s Office said the increases would boost, not hinder, Haredi participation in the workforce and create parity between public funding for Haredi and secular schools.

“Religious children should have the same opportunities as secular children,” the prime minister’s office wrote in a statement. “This is an important step towards social cohesion and inclusiveness.”

The statement added that the budget was “consistent with Prime Minister Netanyahu’s free market principles that helped liberate Israel’s economy two decades ago and turn it into an economic and innovative powerhouse. Prime Minister Netanyahu remains committed to these principles. »

But economists are unconvinced, including in the Finance Ministry and a right-wing research group that otherwise largely backs Mr. Netanyahu.

Israeli governments, including previous administrations led by Mr. Netanyahu, have funded haredi education for years, as well as secular schools and colleges. But such a large increase in this funding has raised concerns.

In an internal government assessment published in Israeli media, a senior finance ministry economist warned that even before the new budget is passed, low employment rates among Haredim will cost the Israeli economy nearly $2 trillion over the next four decades. Israelis in the labor force would face income tax hikes of 16% to maintain the current level of government services, according to the assessment.

The report has raised concerns even within Forum Kohelet, a right-wing research group that has strongly backed the government’s other flagship project, judicial overhaul. Kohelet’s senior economist, Michael Sarel, issued a statement supporting the right of Haredim to live “according to their preferences” but criticized the government for creating “very bad economic incentives for ultra-Orthodox families”.

Three hundred economists from all political backgrounds then issued a joint appeal to the government to “come to their senses”, warning that the budget would “transform Israel in the long term from a progressive and prosperous country into a backward country where a large part of of the population lacks the basic skills to live in the 21st century.

The entire budget covers all state spending, including military, transport and infrastructure, and will provide ministries with around $270 billion over two years. Among other measures, he has increased funding for the Ministry of National Security, headed by Itamar Ben-Gvir, a former far-right activist, and introduced a new food stamp program.

The government also said the budget would help bring down the cost of living, a claim disputed by the opposition.

In his memoirs last year, Netanyahu wrote that he was willing to cut subsidies and maintain fiscal discipline in the 2000s because “I was willing to risk my political future for it.”

Now political commentators say that is no longer the case. Mr. Netanyahu’s four-seat majority in parliament depends on two ultra-Orthodox political parties. If they had voted against the budget, as some of their leaders had threatened, the government would automatically have fallen, paving the way for new elections.

“Survival – that sums it all up,” said Anshel Pfeffer, a biographer of Mr. Netanyahu.

“Netanyahu’s belief in the absolute necessity that he be the leader of Israel runs much deeper than his belief in fiscal conservatism,” Mr. Pfeffer said. To retain power, “he is ready to pay the price in the form of a budget that betrays all the economic principles he believes in.”

Gabby Sobelman contributed reporting from Rehovot, Israel, and Myra Noveck of Jerusalem.