The condition of Israel's economy reminds me of a scene from a Tom and Jerry cartoon in which Jerry the mouse flees for his life from Tom the cat. He races toward the edge of a mountain and then keeps running in the air. It's only when he looks down and sees that there's nothing under him that he crashes into the depths below. That's the situation that the Israeli economy is currently in. We're running in midair on our last fumes of fuel, about to crash land. And it's Finance Minister Bezalel Smotrich that has brought us to this bad situation.
We actually don't have a finance minister. Smotrich isn't interested in the economy. He has no time to deal with such a marginal issue. He holds almost no meetings with senior Finance Ministry officials, and his decisions on government spending are political and sectorial – which isn't far removed from Transportation Minister Miri Regev's reported partisan "traffic light" method. Smotrich doesn't come to the ministry often. There are no in-depth discussions with him or reform plans. The result is low productivity, a public sector that doesn't provide service, ultra-Orthodox Israelis who don't work, antiquated infrastructure and a record cost of living.
During this very period, Israeli food importers and producers are again raising their prices and the government is hiking municipal property taxes and the cost of water and electricity. Turkey's boycott of Israel is also causing price increases, as are the disruptions to Red Sea shipping. Smotrich has been boasting the one reform that he has advanced – "What's good for Europe is good for Israel" – but it's a plan that suffers from a large number of regulatory exceptions and as a result, there's no chance that it will bring prices down.
What interests him is his other job as a minister in the Defense Ministry. There he deals with what's really important to him – the development of West Bank settlements and the legalization of unauthorized outposts. He's also busy with tweets pinning the blame on the October 7 disaster on the Israeli army chief of staff and the IDF brass. That's his way of evading responsibility, despite being a senior minister in this government of failure who therefore bears collective responsibility for the massacre.
Smotrich's predecessor as finance minister, Avigdor Lieberman, handed him an economy that was growing at an annual pace of 6.5 percent, but Smotrich dragged it down to a negligible 1 percent. Instead of seeing that all the added spending went to funding the war, he created a budget of plunder that has been directing billions to religious Zionism, to the ultra-Orthodox and the settlers. Instead of a lean and thrifty government, he has supported the judicial coup and a bloated cabinet with unnecessary ministers and ministries. That has scarred off investors, hurt the high-tech sector and lowered Israel's sovereign debt rating for the first time in the country's history.
For the current year, Smotrich presented a large budget deficit of 6.6 percent, but it looks like reality will be even worse – a dangerous deficit of 8 percent, which is liable to prompt another downgrade by the rating agencies. The governor of the Bank of Israel, Amir Yaron, also isn't optimistic. On Monday, due to concern over inflation, he didn't lower interest rates. But leaving rates unchanged suppresses economic activity, reduces private consumption, boosts unemployment and lowers growth. The stock market is also signaling that things are bad. Since the beginning of the war, share prices have risen little, in stark contrast with the price surges on stock markets in the Western world.
Smotrich is divorced from reality. He's a crackpot, messianic man who goes around his ministry with an inexplicable arrogance while by every indicator, he's a failure. The problem is that the avalanche befalling us is invisible. It's hard to explain to the public at large what major economic damage the war is inflicting. It's also hard to explain the damage that the deficit is causing. It's difficult to be convincing that the downgrade of the country's credit rating causes real harm. It's difficult to demonstrate the major harm caused by the failure to institute reform. It's difficult to quantify the heavy price of an economic boycott of Israel. And the broader public isn't alert to the drop in investment and the harm to high tech.
In other words, we're exactly in Jerry's situation. We're running in midair without knowing that there's no ground under us and that a crash is sooner than ever.