Minister of Financial Rhetoric

I recently attended a conference of lawyers and businessmen where Israel’s Finance Minister, Dr. Yuval Steinitz spoke. He gave an impressive presentation explaining the economic policies of the Israeli government through the use of fiscal terms (that in the best case scenario, he and a few other individual economists in the Finance Ministry understand their meaning), all of which he recited by heart with great confidence and without looking once at his notes.

He nearly made the audience believe that out of a myriad of educated people in the room, he was the only one who really knew and understood the complicated state of the economy. So there is nothing to fear – the treasury is in good hands. The finance minister has a strong vision for the treasury, and yes, he himself can solve the problems, which came to the forefront recently by the middle class protests, without compromising Israel’s economic growth.

However, it seems that the one mistake he made was choosing to open the conference to questions from the audience. When the audience began asking simple practical questions such as: “But who will build the affordable apartments for young people?” (a reasonable question indeed since Israel is deporting all the foreign workers, and Israelis no longer really work in construction), the Finance Minister seemed quite thrown off guard. His initial calm and collected demeanor suddenly faded, as he began to blush and stammer, trying to avoid the questions, ultimately destroying his whole facade.

By the end of the conference, we were left with the impression that Steinitz actually has no idea what he is talking about.  If for a moment he deviates from the speech prepared for him by his assistants (most likely economics doctoral students), then the Finance Minister is certainly in over his head. He has no clue regarding the implementation of economic policy and possesses no understanding of business; at best, he serves as the spokesman for the real finance minister – PM Benjamin Netanyahu. At worst, he is a puppet on strings controlled by young economists in the Finance Ministry who received various degrees in economics and business administration, but who have little practical experience in these areas.

In all actuality, we cannot complain about the Minister of Finance since we don’t really expect him to manage anything. He certainly has no background in economics. He has a Doctorate in Philosophy, and if anything, he is most well-known for his public position in the Foreign Affairs and Defense Committee. Bibi Netanyahu apparently looked for an articulate and distinguished speaker who could attend conferences, in his place, and give impressive presentations on the economic policy which the government executes. This formula can work during periods of routine market calm. During such periods, you raise some taxes and reduce others, and everything soars in the right direction, like a pilotless drone, that eventually reaches his target. The problem is that this formula does not work in times of economic crises, periods that require an experienced fighter pilot who can make decisions quickly and conduct the necessary maneuvers in the moment of truth.

The strongest indicator of Yuval Steinitz’s incapability to make important decisive and timely decisions is based on facts recently published in a report issued by the State Comptroller, which revealed that Israeli citizens are in debt to various government agencies by more than 120 billion shekels. Approximately half of this sum was considered by the state treasury as “uncollectable debts.” In other words, there is about 60 billion shekels of debt that the government is able to collect, yet no one has bothered to do so. We are referring to debts to the Ministry of Justice in the form of corporations’ annual fees (1.5 billion NIS), debts to the Ministry of Interior due to renewal of licenses for firearms (1 billion NIS), medical clinic debts (kupot cholim) to the Ministry of Health (1.8 billion NIS), and other debts including levies to the Israel Lands Administration (5 billion NIS).

At a time when the State is in a deficit of around 15-20 billon NIS, it is inconceivable that Steinitz would speak of increasing the deficit (since someone must pay for all of Bibi’s new ministers), when we already owe the State 60 billion NIS, none of which is being collected. The truth is, is that the government has attempted to do something. Over the past few years, the Finance Ministry executed tenders for private collection companies, (those who have proven track records in collecting taxes owed to local authorities with a success rate of 80% – 90%) and selected four collection agencies which would be made available to all government agencies without cost. That was in 2009, and these approved companies are still available to government agencies. In the words of the Director of the Collection and Enforcement Authority (hotzaah l’poal), David Medioni, “We can rightfully ask: how are more taxes being collected when money is lying on the floor, and you need only to pick it up.”

According to statistics of the private collection agencies, collecting debts for municipalities usually goes as follows: 10% -15% of the debt is collected within a month, while another 10% to 15% within two months, and an additional 10% to 15% within six months (all without taking legal action). So, within six months, between 30% and 40% of the debt can be collected and deposited into the national treasury. Apparently, it would be possible to eliminate the deficit and still remain with a budget surplus; a surplus that would make it easier for the middle class and create a more reasonable and just welfare economy. Yet, it takes someone who can make a decision.

Some argue that government agencies have no incentive to deal with debt collection since the money collected goes into the account of the treasury and not into the account of the corresponding agency. Therefore, they see no immediate reason to invest time or energy to begin rummaging through piles of papers, to collect information on individual debts and cooperate with professional collection authorities. This is precisely where a Finance Minister who understands business management could have solved the problem. Such a Finance Minister could actually amend the budget laws to stipulate that disbursement of part of governmental agencies’ budgets would depend on their debt collection practices. Alternatively, the Finance Ministry could take on the debt collection directly.

We can assume that there are countless less-creative solutions to solve the problem.  These days, we do not need fiscal and philosophical rhetoric to manage the national treasury. With a little rolling up of sleeves and some good old common sense, the situation could improve dramatically. Unfortunately, so far, there no sign of a response from the Minister of Finance, at least not in words we can understand.