Economic Promises Under Scrutiny Amidst Israeli Election Campaign

The current Israeli election campaign has seen economic issues sidelined by national security concerns and domestic political disputes, with economist Yaron Zelekha being a notable exception for prioritizing the cost of living and housing crisis. An examination of Zelekha's platform reveals what critics describe as populist claims, a political strategy characterized by identifying an enemy and promising to fight it for the common person, a tactic seen in historical figures like Juan Perón, Hugo Chávez, and Viktor Orbán. Research indicates that populist economic policies, regardless of political leaning, have historically led to a significant decline in per capita GDP compared to similar nations without such policies.

Zelekha identifies monopolies as the primary enemy, arguing they have created a "paradise for monopolists" and a "hell for young couples." His proposed solution involves a "strong economic leadership" willing to confront capital owners. However, the article argues that breaking up monopolies, such as a sole importer, would likely result in two separate monopolies rather than increased competition, potentially leading to less efficient operations. Historical examples, like the Nesher cement company's forced sale of a factory in 2015 which ultimately failed, and the acquisition of New Pharm by Shufersal in 2017, where a competitor chain collapsed, are cited to question the effectiveness of such structural breakups.

Another populist characteristic highlighted is the offering of simplistic solutions to complex problems. Zelekha proposes reducing VAT, income tax, and corporate tax, funded by eliminating subsidies and tax breaks for tycoons and large corporations, alongside "massive efficiency" in the state budget. The article contends that the revenue generated from these cuts would be insufficient to fund significant tax reductions. For instance, a minimum tax on multinational corporations is projected to bring in 3.5 billion shekels annually starting in 2028, while R&D tax breaks for companies amounted to 6.8 billion shekels in 2023. These figures are dwarfed by the projected 170 billion shekels in VAT revenue and 288 billion shekels in income and corporate tax revenue for 2026. Specifically, a one-third reduction in VAT (from 18% to 12%) would decrease state revenue by an estimated 56 billion shekels, a sum far exceeding potential savings from eliminating tycoon tax benefits.

Zelekha's proposal to establish a new private bank is also presented as a solution to an issue already being addressed. A reform passed in March aims to open the banking market to competition and new small banks. Furthermore, the Bank of Israel has already licensed two new banks, One Zero and Ash, though One Zero has a minimal market share and significant losses, and Ash has yet to launch. The article questions why Zelekha believes his bank would be more successful.

Regarding housing prices, Zelekha suggests that accelerating economic growth and creating alternative investment opportunities would draw investors away from the real estate market. The article disputes this, noting significant gains in both the Tel Aviv and New York stock exchanges over the past five years, along with numerous investment opportunities in high-tech, AI, and energy sectors, suggesting a lack of investment alternatives is not the primary driver of high housing prices. Zelekha's broader economic theory, which posits that encouraging private consumption boosts growth and thus creates investment alternatives, is also challenged. The author argues that growth requires investment in physical and human capital, infrastructure, and R&D, and that increased consumption diverts resources from such investments.

Finally, the article questions Zelekha's claims about his past economic achievements. His role in the 2003 economic plan under Benjamin Netanyahu is disputed due to Zelekha's appointment as Accountant General occurring after the plan's publication and approval. Similarly, his claimed initiative in the 2000s cellular reform is contrasted with the reform's actual development and implementation in 2010-2011, after Zelekha had left the Ministry of Finance. His contribution to the cellular reform appears to have been limited to an economic opinion for Partner Communications suggesting a more moderate reduction in interconnection fees than what ultimately occurred. The piece concludes by advocating for humble, action-oriented leaders focused on serving the public, rather than those making unsubstantiated promises, emphasizing the need for substance over marketing as Israel navigates a challenging period.