Israel Paying Economic Price for Next Election

Economic uncertainty and instability are real cost of Israel’s elections

[additional-authors]

Joshua Shuman, The Media Line

December 24, 2020

The Media Line — Elections cost money. And Israel’s upcoming election, the fourth in two years, will cost much more than previous ones.

The financial burden of the election on state coffers is compounded by the fact that the government has not passed national budgets for 2020 and 2021.

The cost of holding Israel’s upcoming election, scheduled for March 23, 2021, is estimated at close to 500 million NIS ($155.4 million). This is at least 20% higher than the last elections in March 2020 and higher by as much as 40% than the first election in the last two years that took place in April 2019.

“There is a price for everything, and a democracy requires spending money,” Giora Pordes, spokesman for Israel’s Central Election Commission, told The Media Line.

One reason for this cost increase is arrangements needed to hold elections during the coronavirus pandemic. Adding extra voting sites and poll workers, taking precautionary measures and dealing with the unknown are major factors driving up those costs.

The Knesset, Israel’s parliament, disbanded itself in late-night votes on Monday that stretched into early Tuesday morning, once again sending the country to the polls.

But economic uncertainty and instability are the real cost to Israel’s economy of holding new elections.

Israel is suffering from a lack of governing decisions, with not passing national budgets for 2020 and 2021 among the most major. The economic situation has been made even more difficult during the past year for the country, and the entire world, due to the coronavirus pandemic.

“Clearly, under normal conditions, Israel as an advanced economy with 14% unemployment and in a recession due to the pandemic should have a well-functioning government with a well-defined budget and a set of reforms. Unfortunately, we are not there,” Leo Leiderman, professor of comparative economics at Tel Aviv University, told The Media Line.

“I think clearly that going to the fourth elections in two years is not something to be applauded by anyone. On the other hand, we have to realize that the existing government has not been performing. It is in paralysis in its decision-making processes,” said Leiderman, who is the chief economic advisor to Bank Hapoalim, Israel’s largest commercial bank, and formerly served at the Bank of Israel as head of the research department and a senior director.

“There is a price for everything, and a democracy requires spending money.”

Not having an annual national budget is a major factor in the uncertainty that Israel currently is facing.

On the cusp of the new year, the government is still running itself based on the 2019 budget, alongside certain emergency pandemic- and defense-related allocations. Because of this, government ministries cannot prepare for 2021.

“We don’t know what to do. We don’t know whether to prepare cuts in our budget or not. We are in a period of uncertainty,” said a source in one ministry who asked not to be named.

The finance ministry told The Media Line on Wednesday that it will provide instructions to the ministries in the coming days.

Only after the election and the formation of a new government can a budget be planned, passed and implemented.

“In perspective, 2021 seems like it will be a very challenging year for the political system and we need to have a budget as early as possible, by mid-year or later,” Gil Bufman, chief economist for Bank Leumi, Israel’s oldest banking corporation, told The Media Line.

“Government policies have longer-term impact, especially regarding structural changes in the economy, for instance with tax breaks or with policies directly connected to the country’s social fabric,” Bufman said.

Health care, mental health, social services and education are some of what Bufman termed, “soft infrastructure.” These are areas that are suffering greatly from a lack of investment by the state, he said.

“A budget framework with multi-year elements of planning gives more time for longer projects like hard infrastructure projects, for instance, energy, water and transportation. We already see a lot of these in much deeper progress, such as the Tel Aviv subway system,” Bufman explained.

For Bufman, the lack of a budget, and even more so during another election period, is a big challenge. “We need structural change. Putting things off from year to year is not healthy,” he said.

“There is a large degree of inequality of what is in the pipeline. I have a feeling that the soft infrastructure projects will suffer,” he said.

“If and when we get the coronavirus pandemic under control and the economy starts to recover next year, our economic pace will be much lower than our potential. We could be doing much better with a stable government, infrastructure projects and reform. It is not a catastrophe, but it is a pity, it is too bad.”

The Alyn Hospital Pediatric & Adolescent Rehabilitation Center says its projects will suffer, too.

“There is no preventative medicine. We [the healthcare sector] are dealing with emergencies because of the lack of strategic planning and policies. The government is not looking at long-term health processes,” said Dr. Maurit Beeri, Alyn Hospital’s director-general.

“There is a lack of policy building. The HMOs are looking at things quarterly, short-term instead of long-term. Frankly, they should be investing in these young people, rather than paying far more for services when these children grow older,” Beeri told The Media Line.

Yet, even with the pandemic hanging over a new government’s policies, Israel is in a comparatively good position relative to other developed economies.

This is a result of the country starting the pandemic in a better position due to the growing high-technology sector and steady population growth, which much of the developed world lacks, Bufman said.

Israel has a good economy, Bufman said. “We are in better shape than Spain, France and the UK. We are doing much better,” he said.

Leiderman said that Israel’s good economy could be better if the country was in a good political situation.

“If and when we get the coronavirus pandemic under control and the economy starts to recover next year, our economic pace will be much lower than our potential. We could be doing much better with a stable government, infrastructure projects and reform. It is not a catastrophe, but it is a pity, it is too bad,” he said.

Still, Leiderman noted, the sooner elections occur, the sooner the political situation can become clarified which can lead to better times.