Netanyahu boasts an economic achievement? There is room for concern

Netanyahu is proud of the decline in the debt-to-GDP ratio during his term. In fact, the credit doesn't just deserve it and in the last year the trend has actually reversed. So why is he in a hurry?

Netanyahu boasts an economic achievement? There is room for concern

(Video: Deficit Finance Committee Discussion)

A long time ago I was taught that there are two ways to lie. One way is to just lie. The second way is statistics. But after spending some time with statistics, I found that when you stick to the data, statistics are a great way to tell the truth. The problem is that many times when you don't want to tell the truth, you make up the statistics. Or select the data selectively.

This week I recalled this when I read that Benjamin Netanyahu stated that the economy was continuing to grow, and that the deficit was continuing to decrease. He also noted that during his time as Finance Minister, the debt-to-GDP ratio was about 90%, but then he decided that by 2020, he would lower it to below 60%. According to Netanyahu's remarks this week, this impressive target was indeed achieved in 2019, as the debt-to-GDP ratio actually fell below 60%.

So it is true that in Netanyahu's time as finance minister, the debt-to-GDP ratio was about 90%, but in 1985 it was 200%. Therefore, the trend of lowering the debt-to-GDP ratio did not begin when Netanyahu was finance minister. Between 1985 and 2003, debt-to-GDP declined by 110 percentage points. In the period between 2003 and 2019, the one for which Netanyahu takes the credit, he dropped only about 30 percentage points.

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Beyond that, the product debt ratio did not fall below 60% in 2019. It dropped below 60% as early as 2017. So one could ask why Netanyahu recalled celebrating right now? Especially if you take into account that there is still no definitive data on GDP in 2019, and therefore also no definitive data on what the debt-to-GDP ratio was in 2019. But Netanyahu was quick to point out the debt-to-GDP ratio because his Finance Minister's budgetary policy meant that in 2018, for the first time in many years, the debt-to-GDP ratio actually increased. If the debt-to-GDP ratio was 59.9% in 2017, it was 60.4% in 2018. And according to the Governor of the Bank of Israel, if the government does not do something quite extreme, within two years we will have a debt-to-GDP ratio of 65%.

Benjamin Netanyahu (Photo: Reuters)

PM Benjamin Netanyahu at a Cabinet Meeting, January 5, 2020 (Photo: Reuters)

Will taxes go up?

So in a normal situation, when a prime ministerial candidate emphasizes the decline in debt-to-GDP, I, as a citizen, feel excellent that if debt-GDP declines, taxes can be reduced. But in this case, when the Prime Minister mentions the decline in debt-to-GDP before the elections, I start to worry that soon I will actually have to pay more taxes. Because there is nothing like a percentage increase in VAT to solve problems of a larger than planned deficit.

Another interesting thing that Netanyahu noted in his remarks this week is that the government will soon start receiving large revenue from the gas sale discovered off the coast of Israel. He said these funds would be spent by a government led by health, welfare, education and infrastructure. Seemingly these are very happy things. In fact, these are very worrying things, because the shekel has been strengthening for a long time, partly because reliance on country-made gas reduces imports, which causes a surplus of foreign exchange supply. It will grow even more, leading to another strengthening of the shekel.

In order to prevent excessive appreciation of the shekel, which would be very damaging to Israeli industry and tourism, the state decided years ago to establish a fund to invest this money and care for the future of Israeli citizens at a time when gas is running out. According to Netanyahu's comments, this plan was shelved. So, in the short term, it's going to be a lot of fun. Because there is nothing like a strong shekel to make it easier for those who want to buy a car or shop in London. But in a few years, when asked what happened to industry and tourism in Israel, the answer would be: "The public enjoys, and now, the public will pay."

Dr. Avihai Snir - Netanya Academic College