1. The conflict between the Prime Minister and the Minister of Finance is not economic, not social, not security, and not real estate - but it is destructive to the economy, to society, to security, and to real estate.
The current mutual clash between Benjamin Netanyahu and Yair Lapid is about exploding egos, seasoned with fear, suspicion, arrogance, a lot of competition and piles of interested instigators (left, right, Haredim and also Likud MKs who have accelerated their path and already want to see the end of Netanyahu's third term, in the hope that this will end it and clear the way).
The real financial conflict is small and limited. The personal conflict is much more heated, and after all the straw, feathers, and chatter, it all comes down to one thing: pressure for and against zero VAT.
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2. It's just that this completely personal affair is going to force the country into an expensive and crippling election campaign - just 18 months after the government was sworn in (March 18, 2013), less than two years after Operation Pillar of Defense (ended November 21, 2012), less than a month after the ceasefire (August 26, 2014) in the frustrating and embarrassing "Protective Edge" war, with the economy in an accelerating slowdown on the way to recession, with the crisis of trust between the population and the army deepening, the criminal neglect in the "development cities" crying out, with the settlements along the fence fighting against a mass abandonment that has become understandable, with the army having to organize for the next wars, with the country's poor getting poorer, the middle class more destabilized, the economy in danger of unemployment (not in the swelling government and public service, most of which continues to party without becoming more efficient or working), and with apartment prices continuing to climb higher and higher.
3. Assuming that the intentions of the two are fair and their path is true - they can get along. There are indeed gaps, but not such that they must break all the rules and run hysterically to the elections.
Certainly no deeper than those in other governments, not even when the finance minister was from the prime minister's party, felt indebted to him and feared him. It's just that this cannot be done in talks with many participants, like the one today (Sunday) or the one that convened last week - but only between them.
Honestly, in building political trust and an agenda, one-on-one.
If they are unable to do this - if they force elections on the country that will probably be accompanied by a system of slander and mutual accusations (Lapid: I have already started lowering apartment prices, but this Bibi bothered me because of his tycoon friends... Netanyahu: I saved Israel from a deep crisis that threatened it because this Lapid understands nothing except talking, singing, and using hair gel) - they, both, are expected to be punished by the public that is most important to them in the elections: the center of the political map, those who are more and more inclined to choose the man at the top and less the party, those without whom it is no longer possible to form a stable government.
4. Technically, there are several unresolved issues on the table. Deficit, taxes, the defense budget, zero VAT. They are all interdependent and all of them, at least politically, are making cynical use of Lapid's baby: zero VAT.
Netanyahu, like Governor Karnit Flug, is frugal on the deficit. While Lapid was talking about 3.4%-3.5%, and Netanyahu was hovering around 3%-3.1%, today the Ministry of Finance issued a statement that the deficit target is 3.18%.
Even if there is no way to ensure that this is what will happen - on the contrary, the deficit could be higher as always - the gap between the two is not dramatic, and in the end it is a matter of futurism for its own sake, and we have already learned the ability of forecasts to adjust, and we recently received a reminder in the Comptroller's report on the 2012 deficit.
It is clear that the deficit needs to be brought down to as low a number as possible - but for that, the country does not need to be stuck again in months of spending billions to finance parties, elections, sabbaticals, surveys, donors, and loans from banks that cannot be repaid (but the MKs remain indebted to the banks and their decisions are biased accordingly).
5. Raising taxes: Lapid is against it, Netanyahu is also against it in his soul. Only he, unlike Lapid, who has already decided, is still in a conflict between deficit and taxes. This is a waste and this is a plunder. The solution, if it comes, will be in the middle. However, Netanyahu would be happy if he had the strength and energy to cut sectoral tax benefits.
Lapid is opposed; perhaps because of the taxes, perhaps because of his middle-class supporters - who are masses of public service workers - perhaps because of fear of the economy being shut down by the trade unions... This is also not a reason to break the bank, since Netanyahu, in his countless rounds as prime minister, finance minister and super-economic minister, did not touch the exemptions, and always chose not to confront the Histadrut.
6. The rating agencies have become a double-edged sword, each according to its own needs. Those who push for an increase in the deficit say: The rating agency economists will understandably accept an increase in the deficit in a year of war, when the entire world is declaring war on Iran and ISIS.
Those who oppose it say: Increasing the deficit, which will lead to an increase in debt, will lower Israel's credit rating, which will force it to raise money at high interest rates, which the public will of course pay. Both options are reasonable, but we have already learned that the central judgment of the rating companies is not spot-on; they want to see an economy under control, a government that doesn't brag, that a decision is a decision, that politicians don't run amok from war to elections to another war and another election...
7. The defense budget. Both the prime minister and the finance minister accept that there is no choice but to increase the defense budget. The dispute is over how much. While Netanyahu, who sweated in the "pit" and gives himself credit as a super-defense expert, is more inclined to side with the tens of billions of Moshe Ya'alon, the defense minister, and Benny Gantz, the chief of staff, Yair Lapid is much less carried away. Not 9 billion from the 2014 budget to cover war expenses and restore the situation to normal - that's half of it. Not 11 billion in addition to 2015 - that's half of it.
Not another 10 billion for a five-year plan for drawing lessons - but we'll see what happens in the Locker Commission, what comes up in the procedures for drawing lessons from the last war and the one before it. What will happen with the tunnels, what about the handling of mortars.
Not rushing to pour money that could, like his predecessors, go towards the exorbitant salaries and pensions of the ironclads occupying the offices. The hidden truth is that Netanyahu, like all his predecessors, with the exception of one year of the late Yitzhak Rabin, is afraid of the death toll. Prime ministers are not thrown out because of 350 deaths in traffic accidents a year, or because of hundreds who die from infections in hospitals, also because of dangerous educational gaps; prime ministers fall for the deaths of wars.
That's why they all, one by one, are surrendering. Just don't let them say it's because of them. Lapid must understand Netanyahu's nightmares, just as Netanyahu must understand the public mood. If he decides that the security forces will take all his desires into their own hands - he will be left with nothing for the next elections.
8. Now, to the real, central thing, to the heart that drives all of this: Lapid's plan for zero VAT on apartments. Without saying a word, they hint to him this way: If you give up on this plan, we will save 2.5-3 billion shekels, and then we can reduce the deficit, not raise taxes, not cut exemptions, give to security, and not risk a rating downgrade... and in general, everything will be abundant and wonderful.
Let's put it this way: Lapid's zero-VAT plan seems problematic, unreasonable, and could raise the prices of all other apartments, opening a new and fertile path of protectionism, cronyism, and bribery. But this is what Lapid wants, this is what he insists on, and today he cannot afford to back down from it. And he is not alone. There are few finance ministers - you can count them on the fingers of one hand and there will be a surplus - who have not initiated, surrendered, created, and left behind some kind of hole worth billions.
Some because of political interests, party pressures, some because of fear, others because of misunderstanding, ego, weakness in the face of officials or prime ministers, a minority of them worried about "making things right for themselves," and on and on...
So Yair Lapid could cost us 2.5 billion shekels next year due to zero VAT. To his credit, he agreed to forgo legislation and is content with a temporary order for seven years. That doesn't sound good - but that's the reality. By the way, the Minister of Finance who initiated the capital market reform, known as the Bachar Committee, actually only did half the job. He passed the all-important law to eliminate bank control over mutual funds and provident funds and transfer control to institutional investment entities, but stopped mid-aliyah and did not impose regulatory conditions on the investment houses.
The damages from this since then and to this day are worth many billions in the form of unreasonable management fees that could reach a quarter to a half of the pension savings. That finance minister is called Netanyahu. Not to mention the damages of other finance ministers for their generations.
9. For zero VAT, and even though the prime minister's circle is telling him that it will inflate Lapid's ego and status - it's not right to go to the elections. More than that, Lapid will have to meet the burden of proof. If he fails - that's his risk. If he succeeds, despite all the criticism and analysis - it's the economy's victory.
10. A quote from a poem, from us to the Prime Minister and the Minister of Finance, by Yehuda Amichai: "From the place where we are right/ Flowers will never grow/ in spring...""
