The approval of the budget cuts in the Knesset is a dangerous precedent, in which the citizens are forced to absorb a heavy and unnecessary price in their pockets. The budget cuts, which amount to billions of shekels, are not essential or necessary, and some of them stifle proven growth engines. This is the cut in the budget of the Volcanic Institute, this is the cut in the 550 program for the Arab society, this is the huge cut in the transportation development budgets.
The excuse for harming state services for citizens is the large deficit, and the fear of a further lowering of the state’s credit rating. This is a very puzzling claim. Changes in the prices of the country’s bonds in foreign currency occurred before the downgrade, and it did not affect them.
In an equally puzzling way, the accountant general made a huge debt issue of 8 billion dollars at an extremely high interest rate. The debt was raised at interest rates ranging from 5.5% to 6.05% compared to 4%-4.8% in similar ranges in shekels.
Treasury had cheaper alternatives. It was possible to lower the interest rate at the cost of reducing funding by several billion dollars. It was also possible to use outstanding US government guarantees of more than $3 billion to borrow at a much lower interest rate. It was also possible to continue the main trend of the government’s fundraising, which is to raise debt in shekels – a more controlled debt that is raised at a lower cost. Instead, the Treasury chose to raise expensive debt – which indicates an apparent contradiction in the Treasury’s considerations.
12. The treasury issuance – the largest issuance abroad ($8 billion) reduces the need to further increase the volume of weekly issuances in the local debt market. However, the interest paid by the treasury is high – the 5-year bond was issued at a margin of about 130bp above The equivalent Treasury, the closest to corporate bond spreads in the world rated BBB- pic.twitter.com/QXXWi4vCob
— Modi Shafrir (@ModiShafrir) March 10, 2024
With the members of the Knesset, the finance representatives talk about the necessity of budget cuts, and with the global capital market – the representatives of the Accountant General carry out a huge and especially generous fundraising for the debt holders, at the expense of the citizens of Israel. In both cases there are signs of image considerations over considerations of real responsibility. This is the case with the rating companies, according to which Israel is ready to make “difficult decisions” in the budget, and this is the case with the capital market – where Israel did receive very high demand, and achieved a demonstration of access to capital, but at a high price.
If the government had real economic responsibility for the citizens of Israel, it would avoid cuts, especially in economic growth engines, and also avoid a display of extravagance in raising expensive debt, when there are simpler and cheaper alternatives that are routinely available.
Apparently, the tax increases in the budget could have been a justified idea, but the nature of the taxes that the government chose to impose is regressive – mainly harming the weak and placing a lighter burden on the powerful and the rich, with the exception of the tax on the banks. In doing so, the government works to increase social disparities.
The biggest absurdity is that these moves are taking place during the biggest and longest war in recent decades, when previous budget cuts have turned the state apparatus into a starving one, which finds it difficult to cope in times of emergency. If that’s not enough, the budget proposal also limits staffing standards and will prevent or make it difficult to staff positions that were vacant until now. The citizens give more and more of themselves – in army recruitment, in civilian volunteering and in donations – and the government responds by increasing the burden, instead of promoting relief and economic growth, and dealing with the costs of war in the end.
It is easy for the Treasury to promote economically destructive moves also due to the lack of a real economic debate in Israel. The neoliberal right-wing ideology is agreed upon by all, and is reinforced by the media and academia. With the exception of sporadic statements and opposition to sectoral budgets for the religious and ultra-Orthodox – there is no challenge in the political system to the idea that it is logical and reasonable to weaken the citizens of Israel economically, especially the already weak ones, after the massacre on October 7 and during the war that started in its wake.
A real alternative to this policy is the opposite: increasing the tax burden specifically on the powerful, and strengthening the state apparatus, both in security and in services to the citizen.
