תיקו הרסני: מה יקרה לנו אם לא תהיה הכרעה בבחירות?

The current election cycle in Israel is characterized by a lack of decisive outcomes, leading to a political deadlock. Polls have dominated the discourse, reflecting a stalemate between the major blocs. With Avigdor Lieberman having seemingly eliminated the option of external support from Arab parties, another round of elections, similar to the period between 2019 and 2023, appears likely if no unexpected results emerge.

This prolonged political paralysis has significant implications for the Israeli economy. Daphna Aviram-Nitzan and Roi Kenet-Portal from the Israel Democracy Institute warn that without a government to pass the 2027 budget, the state will operate on a continuing budget. This limits monthly spending to one-twelfth of the legal allowance and, as inflation outpaces population growth adjustments, erodes the real value of government funds. For instance, if the 2026 budget had not passed, the state would have operated with 93 billion shekels less than the approved amount.

Civilian ministries such as education, health, and welfare, already facing budget constraints, will bear the brunt of these cuts, impacting their ability to expand services and meet growing public needs. Israel's civilian expenditure is already significantly lower than the OECD average. Lower-income segments of the population will be most affected, as they will lack the means to afford services the state can no longer provide. The middle class will face increased outlays for private healthcare, education, and welfare. This political paralysis could thus exacerbate the cost of living and deepen social inequalities, even without tax hikes.

Social organizations and non-profits may also suffer, as a continuing budget restricts new commitments and requires special approvals for many activities. Infrastructure investments could be delayed, new projects stalled, and budgets for innovation and investment authorities reduced. The OECD has cautioned against broad cuts and urged protection for education and infrastructure investments, areas vulnerable to a lack of government prioritization.

On the positive side, a continuing budget imposes fiscal restraint, potentially reducing the deficit in the short term. However, this could lead to slower growth, decreased tax revenues, and higher interest expenses. Credit rating agencies like Fitch have already issued a negative outlook for Israel, citing political instability as a risk to debt reduction and increased financing costs.

Despite these concerns, the Israeli stock market has shown surprising calm. The stock exchange is not reacting as if anticipating a crisis, the shekel remains strong, and Israel's risk premium has decreased significantly. Rafi Gozlan, Chief Economist at IBI Investment House, suggests investors are pricing in a deadlock scenario, viewing it as preferable to the continuation of the current government. He notes that while a change in government could improve Israel's international standing and encourage investment, a prolonged period of political instability hinders decision-making, investment, and long-term planning, potentially leading to slower growth and lower returns.

Ariel Moldovan, Deputy CEO of Pasternak Shoham Investment Management, distinguishes between the impact of elections on economic activity and stock market performance. He points to Israel's relatively good economic standing, with inflation under control, interest rates falling, and a strong currency. However, he cautions that prolonged political uncertainty discourages investment and business initiatives. While short-term market reactions to election outcomes are common, sustained instability can have a more significant economic impact, though not necessarily a market downturn, as company profits remain the primary driver of stock performance.

While investors may continue to profit if companies perform well, citizens facing daily challenges like education, healthcare, and access to government services are directly dependent on government functionality. A return to repeated elections could see the stock market and shekel remain stable, but the public may find the political stalemate increasingly detrimental to their daily lives and financial well-being.