Three hours after pulling an all-nighter in the Knesset to pass the state budget—the largest in Israeli history—and despite having slept during only two of the previous 24 hours, Israeli Finance Minister Bezalel Smotrich sat down for an interview on Wednesday, eager to discuss his economic agenda and defend the budget.
Q: Congratulations on the budget. Are you happy with it despite the heavy criticism—including by your Finance Ministry officials—on the wasteful spending for coalition partners’ demands?
A: It wasn’t an easy feat to accomplish; nevertheless, this is a truly good budget. And it is also fiscally conservative and it reins in spending, which is critical in the inflationary environment we are in. This environment poses the biggest challenge for this government right now. I said right from the get-go that we will keep spending in check. We have to ensure that our fiscal policy is in lockstep with the monetary policy, otherwise, the Bank of Israel governor will have to hike interest rates again and again.
We went for a budget that sets a target deficit of 0.8-0.9%, but now the chief economist says we are going to hit 1.1%. But even if we end up with 2%, this is nothing to worry about. All the lies in the media, all the doom and gloom about cutting back on programs, and the articles on how my ministry is supposedly considering raising taxes. But I am willing to say taxes won’t go up; there won’t be cuts to programs, because we don’t need it.
Q: Let’s talk about the special property tax fund that will use money collected by rich municipalities in order to fund projects in poorer ones.
A: For more than 20 years the Knesset has been trying to enact it. When I became minister, the Budget Division told me that it should be used as a bargaining chip so that I can eventually take it out of the budget as part of a compromise. I got into the matter and spent hours on end studying this. I told them, “No way; we’re going to have it passed. This is the right thing to do, and we have to legislate it.”
Q: But you are going to hurt the revenues of strong municipalities that know how to use the infrastructure at their disposal, like Tel Aviv.
A: But who built this infrastructure? The state. Tel Aviv is Tel Aviv not because of Mayor Ron Huldai. If you put Huldai in Dimona, Dimona would not become Tel Aviv, because it is not on the sea and it is not in central Israel. And above all, the state has not invested hundreds of billions of shekels in Dimona over the years, on infrastructure.
Q: The budget doesn’t tackle the cost of living that much.
A: We have bolstered the disposable income Israelis have in a significant way by expanding negative income tax eligibility, by giving work allowances to those who get lower pay and by increasing tax breaks for those who have children. The reform in the meat industry increases the maximum period in which you can sell frozen goods from 80 days to 120 days—like in the rest of the world. This will increase imports.
The budget gives more in direct subsidies, and we do not hurt farmers. Imports have been down because measures that were supposedly against pests created barriers. The budget invests two billion shekels ($536 million) for the next four years in encouraging innovation so that more technology can be phased into service and thus agricultural output will increase.
Q: What about cracking down on monopolies? What happened to that bill?
A: That bill was not fully honed. We have received many inquiries from small manufacturers who have to rely on large distribution networks because they cannot get direct access to supermarkets. We are going to set up a committee next week … and in three months we will get recommendations. The main thing we have proved in this budget is that I am not beholden to anyone and I have the guts—and the ability—to fight over this. We are going to pull up our sleeves to tackle centralization and monopolies.
As a right-winger who espouses a free market, I don’t want to intervene, but as a government, our goal is to create conditions for real competition, and that is why we have to break up monopolies that have been built over decades. These are monopolies that have been built under the auspices of the law, with regulatory worlds that have been ultimately serving them, the strong actors. These are powerful forces.
A beverage corporation has become the owner of a media outlet. These companies invest hundreds of millions of shekels in advertising. I have no doubt that I will have a difficult fight ahead. We will start with the food, and then move on to big pharma and other sectors that are centralized, and we will open them up to competition.”
Q: Do you believe prices will start coming down during your term?
A: The answer is yes. Absolutely. We will promote decentralization and the lifting of regulatory barriers. Look at Carrefour. It sells some 5,000 products across Europe, but only 1,000 in Israel because it has to go through so much red tape—[it’s] like the Via Dolorosa.
Q: Can you pledge that you will meet the goal of having a 0.9% deficit at most?
A: No, but I don’t have to. The normal deficit goal is 2.5%. We are now in an era of global uncertainty, and perhaps this could be a great opportunity for the Israeli market. We have a safety net: Even if we see revenues drop between 30 to 40 billion shekels in 2024, we will have still not crossed the 2-2.5% threshold. We will not raise taxes, perhaps even go the other way.
Q: You passed an increase for the allowances given to Haredim in yeshivot and you added more funding to Haredi institutions that don’t teach the core curriculum, defying the advisers in the Finance Ministry and most of the economists.
A: That is correct. Let me say up-front that we have maintained the preferred status of the state educational system, and we continue to prioritize incentives to teach core curriculum subjects. There are some institutions that get only 55% of the funding because they teach only 55% of the core curriculum. This criterion was set more than 20 years ago.
Over the years, due to various pay benefits and after-school programs and so forth, the 100% rose to 200%, but the 55% stayed in place. So in effect, the 55% became 24%. Now we are just restoring it to its former size. This should be commended … I don’t hide my views—I hold Torah study in high regard and I think this is an important value in a Jewish state. Those who are good at it will continue to do it, and those who are not will join the job market at a much earlier age.
I know one thing: Coercion never worked and will never work. Those who think that what has failed for the past 75 years [will work] can do so until the cows come home; however right this stance may be, it is not a smart one.
Q: So you believe that increasing the funding for Haredi schools will not be a negative incentive for integrating Haredim in the job market, despite what your professional staff say?
A: You must understand that the opinion of those professionals [in the Budget Division] doesn’t mean that all those billions in increases will cost us trillions in 2060, it just means that the new funding will cement the current trajectory we are already in. I believe this prediction is wrong. While there is no denying that one of the biggest challenges for the Israeli economy and for me as finance minister is to integrate populations into the job market, you have to keep in mind that the Haredi population has been undergoing a major transformation, including social changes and cultural shifts. There is no one quick fix.
In the grand scheme of things, Haredi women do go out to work, Haredi men’s integration has been too slow, but it’s happening. I can’t force them to enter professions that involve subjects they did not study in school. I don’t think a hungry or poor boy will be more inclined to join the job market—the opposite is true. And we see this conclusion in every study on the matter: When a person has a better life, they open up to the world and want more, and this makes him integrate more.
Q: So the Budget Division was wrong?
A: I think it is wrong, but I have a great working relationship with them. I like them and respect them. I never stop them from issuing their analysis papers, since I am a real democrat. But eventually, I have to decide. And it is my prerogative and my duty.
Q: Can you understand why those who do not see Torah study the same way don’t want to subsidize yeshiva students, and that this has an adverse economic effect on Israelis? What is your answer to those who say that the state prefers to give yeshiva students stipends but not university students?
A: These are not stipends. They just retroactively get more funding due to the increase in funding for Haredi institutions. A student in the Bezalel Academy of Arts and Design [in Jerusalem] costs the state some 38,000 shekels ($10,000) a year. We subsidize this. We subsidize students who major in gender studies and the arts. We invest in them. A normal country invests in the arts, in humanities, in arts.
If everything is viewed through an economic prism, then let’s fund only those faculties that are conducive to the economy’s productivity. I am not dismissive of the humanities or Bezalel, but what’s the contribution to the economy in having students throw paint on the wall and call it art? Those who want to pursue gender studies should pay for it, why should we fund it? Because that is what a normal country does.
If I give Habima, the national theater, 50 million shekels ($14 million) and fund cinema with tens of millions of shekels, then I can also fund other values. The funding for yeshivot is much lower. The yeshivot get some 2 billion shekels ($530,000) a year, and the Council for Higher Education gets 13.5 billion ($3.6 billion). Can you tell me how much of that really goes into the sciences and how much goes into the humanities?
That’s fine, I am for this; woe to us if we do not fund culture and sports. But if we do all this—I can also give two billion shekels to yeshivot because they are a key part of society for those sitting in the government. We fund the general public the most; the Haredim get only a little portion.
Q: But when an Israeli looks at the distribution of coalition funds, they see the government’s values, not their own. It all goes to the religious, the Haredim and to the settlements.
A: That is not true. We increased budgets across the board, in all fields. Only one percent of the budget actually reflects the government’s values; that is what democracy is all about. I wanted to give funds to the oppositions’ causes as well, and even set aside part of the budget for that. I told them, “Let’s have a proper discussion, give me some causes,” but they decided to shout and fight rather than take what I was offering.
So we are funding pro-family projects with several million shekels, what’s so bad about that? I’m not ashamed of that. These are my values. I got seven seats in the election, I too have the right to promote my causes under the auspices of democracy.
Q: [National Security Minister Itamar] Ben-Gvir has accused you of giving handouts to your friends and forgetting about the Negev and the Galilee. The Haredim wanted more funding, but you adamantly refused at first. Is that how the system works? Simple extortion?
A: You overdramatize everything. These are things every finance minister has to experience. The coalition agreements were initially about 70 billion shekels [$18.8 billion] in total but I insisted on limiting them to 12.5 billion, and then we added a few billion. This came along with spending cuts because I refused to break this limit.
It was actually Itamar, for whom I have a lot of respect, who got the best treatment when it comes to the coalition agreements. I think he launched a cynical campaign on the backs of the Negev and the Galilee. The budget has billions of shekels for those two areas. To say that there is not enough money just because some ministry that is held by your party [says so] is untruthful, unfair, and non-collegial.”
[The Ministry for the Development of the Negev and Galilee is headed by Yitzhak Wasserlauf, a member of Ben-Gvir’s Otzma Yehudit party]
Q: But this has become a pattern—the Haredim and Ben-Gvir made threats and got what they wanted, and this was not the first time that Ben-Gvir boycotted the government.
A: Threats must be out of the question. This government is good for the right and for Israelis. The alternative is to have the left partner with the enemies and supporters of terrorism. That is why we have to make sure the government stays in power. Boycotting votes must be out of the question and I think that on this issue, Itamar was gravely wrong, and everyone says so. He wanted more funds, and that’s fine, but I hope he doesn’t boycott again.”
Q: S&P decided to keep Israel’s credit rating in place because the reform was put on hold. The protests are waning. Are you now going to put it back on the table?
A: The credit rating agencies didn’t cite the reform; they cited the uncertainty that has been created due to irresponsible elements that were willing to take down the house with them, who went to those agencies and asked to take down the rating and scare off investors based on lies [about] the reforms.
You ask me if I am willing to capitulate to those who want to hurt the economy and threaten to drill a hole in the ship because they don’t like the democratic choices? I will not do that, because if I do, we could just end the story called Israel and close the book on democracy. We were elected—and not by a thin margin—based on a clear judicial platform and I am saying this outright: The process of judicial reform has been set in motion and cannot be rolled back.
Had National Unity Party leader Benny Gantz looked at this through a rational prism, we would have already reached an understanding, but the opposition has no interest in reaching that point and creating calm; they just want to engage in dialogue for the sake of dialogue. As far as they are concerned, this is just a pastime.