Netanyahu Budget Shores Up Coalition, but May Risk His Economic Legacy

For decades, Benjamin Netanyahu, Israel’s prime minister, has been a champion of the free-market economic doctrine. As finance minister 20 years ago, Netanyahu was praised by Milton Friedman, the godfather of neoliberal economics, as he slashed welfare payments, tightened public spending, accelerated privatization and promoted the country’s technology industry.

In his autobiography last year, Netanyahu devoted three chapters to explaining how his treasury tenure had rescued the economy from an “old-fashioned semi-socialist quagmire,” in part by cutting subsidies to ultra-conservative Israeli Jews, who often shun the job market. for religious study, and push more of them into work.

Mr. Netanyahu’s new national budget, which was approved by the Israeli Parliament early Wednesday morning, risks turning that legacy on its head.

Caving in to the demands of his ultra-Orthodox partners in a shaky coalition government, Netanyahu massively increased state funding for privately run ultra-Orthodox schools, seminaries and other social and religious projects, as well as ministries run 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 move would do long-term damage to Israel’s economy because it reinforces an ultra-Orthodox school system that largely fails to teach math, science and English, leaving children unprepared for the workplace. modern work.

Mr. Netanyahu’s stance on the issue has caused a storm in Israel, raising tensions between ultra-conservative believers, who want to preserve their autonomous lifestyle, and their secular neighbors, who argue that their taxes are increasingly being spent on a part of the population that provides little in return and largely avoids military service.

The debate led a secular TV presenter to describe the ultra-Orthodox as “bloodsuckers”, while religious leaders said their communities’ volunteer work for charities and emergency medical groups had not been appreciated.

And the budget frenzy has also undermined Netanyahu’s free-market credentials amid accusations that he is making economic decisions based on political expediency.

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

Ultra-Orthodox Jews, or Haredim, are the fastest growing part of the Israeli population: they currently make up about 13 percent of citizens, a proportion that is projected to triple in four decades. Economists say this increase will cost Israel trillions of dollars unless the ultra-Orthodox, largely autonomous school system better prepares Haredi children for the world of work, and more Haredi adults are encouraged to work rather than work. study in seminaries.

Israel’s new budget does the opposite. Increases annual state funding for seminaries, or yeshivot, and student stipends at those institutions by at least 50 percent, or more than $160 million, according to a assessment by analysts at the Berl Katznelson Center, a political research group. And it more than triples annual state funding for Haredi schools, an increase of more than $400 million, according to the same analysts.

When asked to comment for this article, the prime minister’s office said the increases would encourage, not hinder, Haredi participation in the labor market and create parity between state 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 inclusion.”

The statement added that the budget was “in line with Prime Minister Netanyahu’s free-market principles that helped unleash Israel’s economy two decades ago and made it an innovative and economic powerhouse. Prime Minister Netanyahu remains committed to these principles.”

But economists are not convinced, even within the Finance Ministry and a right-wing research group that is otherwise broadly supportive of Netanyahu.

Israeli governments, including previous administrations led by Mr. Netanyahu, have funded Haredi education for years, as well as secular schools and universities. But such a large increase in that funding has raised alarm.

In an internal government assessment published in the Israeli media, a senior finance ministry economist warned that even before the new budget was passed, low employment rates among Haredim would cost Israel’s economy almost $2 trillion over the next four decades. Israelis in the workforce would face income tax increases of 16 percent to maintain the current level of government services, according to the assessment.

That report raised concerns even at the Kohelet Forum, a right-wing think tank that has staunchly backed the government’s other flagship project, judicial reform. Kohelet’s chief economist, Michael Sarel, issued a statement in which he supported the right of Haredim to live “as they choose” but criticized the government for creating “misguided financial incentives for ultra-Orthodox families.”

Three hundred economists from across the political spectrum jointly called for the government to “restore common sense,” warning that the budget would “transform Israel in the long term from a progressive and prosperous country to a backward country where a large part of the population lacks basic skills for life in the 21st century.”

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

The government also said the budget would help reduce the cost of living, a claim the opposition disputes.

In his memoirs last year, Netanyahu wrote that he had been prepared 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. The majority of Mr. Netanyahu’s four seats in Parliament depends on two ultra-Orthodox political parties. If they had voted against the budget, as some of their leaders threatened, the government would have automatically fallen, setting the stage for new elections.

“Survival, that about sums it up,” said Anshel Pfeffer, Netanyahu’s biographer.

“Netanyahu’s belief in the absolute necessity of being Israel’s leader runs much deeper than his belief in fiscal conservatism,” Pfeffer said. To retain power, he “is willing to pay the price in the form of a budget that betrays every economic principle in which he believes.”

gabby sobelman contributed reporting from Rechovot, Israel, and myra noveck of jerusalem