"Economically irresponsible policy could lead to the emigration of strong populations and a spiral of collapse"
"Economically irresponsible policy could lead to the emigration of strong populations and a spiral of collapse"
The former Chief Economist of the Ministry of Finance, Shira Greenberg, says that unless steps are taken for different sectors of Israeli society to share in the national security and economic burden, "it will mean severe long-term economic damage."
"It was expected that after such a large and shocking disaster, there would be some call from the government for all sectors to ask themselves what they can contribute to the country rather than what they can receive from it. This is your country. If, at the leadership level, they had asked 'Let's see how each sector contributes to the country,' we would likely be in a different place, and this would provide a lot of strength and power, especially after the general public and civil society showed unity, giving, and the desire to contribute and help each other,” says former chief economist of the Ministry of Finance Shira Greenberg in conversation with Calcalist.
For Greenberg, the following steps must be taken by various sectors within the country: "The Haredi leadership must understand the need to learn core subjects, to equally share in civic responsibilities, and to reduce incentives not to join the workforce; the non-Haredi Jewish population must understand that there is no avoiding tax increases; and the Arab community must understand the need for national service."
But the government is far from making such a call and prefers to continue with budgetary recklessness.
"This is a question that needs to be addressed to the government. But economists, professionals in the Ministry of Finance, rating companies, all have noted and continue to note the importance of making orderly, professional decisions, making things more efficient where needed—meaning cuts in areas that do not support growth—focusing and prioritizing, and of course, starting to reduce the deficit immediately. This naturally includes tax increases to demonstrate fiscal responsibility to the markets. Why does the government still distribute coalition funds as it did last week and give money to unnecessary ministries? Apparently, it has additional considerations that are unfortunately a high priority.
"Apparently, the economy is not at the top of their priorities, and it must be because while it is true that without security, there is no economy, if there is no economy, there can be no security. If we end up with an economy that is significantly damaged in the long term, it will also mean no security. Therefore, we must balance both issues and make the right decisions now so that Israel continues to exist and thrive as it has in the past. This is critical."
"Waiting to see taxation measures"
Greenberg, who left her position a year ago after completing a full term, was known as an outspoken, independent chief economist who did not hesitate to express her professional opinion and even warned of the damages of the government’s attempted judicial overhaul. These days, she refuses to reveal her future plans but does not hide her sharp criticism of the government, which, for her, began its mismanagement during the days of the judicial overhaul. The interview with her was conducted ahead of Reichman University’s Aaron Institute for Economic Policy annual conference, where she will speak.
"I very much hope the government will come to its senses. We have seen decisions, both in the 2024 budget and now, of coalition fund distribution and lack of efficiency. I am waiting to see the taxation measures. I certainly expect to see the government show fiscal responsibility. Although the judicial overhaul that they began has already had an impact, as we saw in the capital market with the yields here compared to NASDAQ, the stock market, the weakening of the shekel against the dollar—after October 7, the decision-making should have been different in the economic context."
The government claims it's all because of the war.
"We currently see the spike in CDS (Credit Default Swaps on government bonds) as a natural thing during war. But the point is we never see the alternative reality, which is that the extent of the damage could have been different if responsible policies were followed. Therefore, it is critical that when looking ahead to the 2025 budget, the necessary steps—cuts and tax increases—are taken because all rating companies and investors are watching these issues. We need to minimize the risks. We are in a period of such uncertainty that it is not at all certain that there will be a 'rebound' in 2025. It depends on the war, its intensity, whether security returns, whether investments return, and of course government policy. This is critical to ensure we get through this period and allow for the continuation of a thriving economy."
Are you worried about a mass migration of the strongest sectors of Israeli society?
"If over time we see economically irresponsible policy and behavior, and we see the burden increasing—both economically on the productive population and the security burden—then it could ultimately lead, God forbid, to the start of emigration of strong populations with alternative options. This is something we don’t want to see because it’s the start of a 'spiral of collapse' which we’ve also warned about.
“If we do not integrate the Haredi population in terms of core studies and the labor market, and if we do not integrate them in the army in terms of sharing the security burden, there may come a moment when some say, 'In the long term we can’t stay here because the security burden is too high and the economic future is unclear in terms of demographics.' If we reach such a point, it is very, very problematic because it will harm all populations in Israel, including the Haredi population. If we do not manage to address this, it will mean severe long-term economic damage."
It seems the problem is that the finance minister is having a two-day discussion on the 2025 budget, disregarding the professional level and thinking everything can be solved with a scheme of locked-in profits—a tax dividend campaign for company owners who will pay 25% tax today instead of 33% in the future.
"A two-day discussion is, of course, not sufficient or serious. The 2025 budget is critical, and therefore the discussion should be much deeper and more thorough, with a willingness to prioritize cutting and raising taxes. On the contrary, during this period, it is necessary to strengthen professionals because we need to enhance professionalism. Decisions must be made that are professionally sound because all eyes are on us. They want to see that we act responsibly, so we need to strengthen the professionals who have brought the right steps and need to implement them."
Is the judicial overhaul continuing at full force to weaken professionalism?
"Weakening the professional level is a long process that goes back many years. Starting from the period when a permanent police commissioner was not appointed, to the weakening of the judicial system in terms of the judicial overhaul. Weakening professionals in the economic system is, of course, part of what they are trying to do. It is critical that the public sector in Israel is a professional and strong sector, that its voice is heard, and that there is transparency. There is also extensive economic research showing that when you weaken gatekeepers, you naturally harm the economy. This goes through corruption, damage to public trust, wrong decisions, and suboptimal policy. These are critical things not only according to economic literature but also in reports issued by the OECD and the International Monetary Fund during the judicial overhaul.
"Unfortunately, we see even in this period that these attempts have not ceased, and steps are still being taken, dealing with issues that are not critical to managing the war. On the contrary, they can weaken us internationally and economically. It is crucial to strengthen that professionalism is maintained.
Have you noticed an attempt to weaken the chief economist recently?
"I feel the attempt to weaken the credibility of professionals has been going on for many years. I also think it has intensified. During the judicial overhaul, it reached its peak, and to my surprise, it continued to grow even after October 7. I definitely feel that there is still such an attempt, and we must fight against it. We must ensure it does not happen because if it does, we may deteriorate—certainly economically and in the quality of the services we receive from the state—like what happened in other countries.
"Unfortunately, from what we have seen regarding the appointment of the Civil Service Commissioner and the further weakening of gatekeepers, whether legal, economic, independent media, or the police, the current conduct could have very high costs—also economically. I very much hope that this current deterioration will stop and there will be a change in approach."
Are you optimistic that a change in approach is possible?
"I only see a direction of further weakening. Also, women are absent from the public discourse. There are no women in key positions, no women in decision-making, and this is reflected in the policy this government is adopting. Therefore, unfortunately, I am not optimistic about this government's desire to change its behavior so far regarding the weakening of professionals and gatekeepers."
Maybe officials are not shouting enough?
"I hear them shouting today about the Haredim, about taxation, about equality in the burden, about economic equality, and about reducing incentives not to enter the labor market. Regarding the attention of the political level—it is continuously deteriorating."
Did you shout enough?
"I always said what I thought professionally, and I said it loudly, clearly, and transparently, both within the Ministry of Finance and outside of it, both to the government and to the public. This is how it should be done. It certainly depends on the person and whether they express their position, and how intensely they say it."
Maybe appointing a sectoral finance minister is a permanent recipe for failure?
"Anyone in the role, especially as finance minister, should consider the good of the economy and the entire public. Not to perform a sectoral role and look at a particular sector and only its interests. From the moment you are appointed, you are the finance minister for the entire public. The same goes for public service professionals, no matter where they come from. This is what is expected of anyone in public service, certainly in a ministerial position and certainly from the finance minister. Ultimately, you are judged by your actions. So far, we have seen that many of the decisions made were sectoral decisions. This is a test period. The 2025 budget is a test because the situation is very, very challenging, and all eyes are on the decisions of the finance minister and the government. I expect to see professional decision-making, but time will tell if the decisions made were for the benefit of the entire public in Israel or solely sectoral."
Where have you noticed other non-professional economic decisions recently?
"In the committee dealing with the defense budget, which is taking too long to establish and has not yet started its work. Its composition is very problematic because there is only one representative with an economic-civilian background and not a military one. The economic perspective within the committee needed to be strengthened because it is essential to learn from the 'lost decade' (the decade after the Yom Kippur War when the budget soared, and the right policy was not adopted). If we have very high defense budget levels, we will pay very heavy prices in terms of growth—and this translates into a lower standard of living for residents. It is crucial that a position is taken that considers the economic impacts and balances security and economic needs. This is critical, and we do not see a proper balance between economists and military personnel. Civilian expenditures are critical to Israel's potential growth.
"Secondly, as with everything that has happened since this government was formed, we do not see women: not in the committee (today it was published that there are candidates to join the committee, but no official appointment has been made), nor in government offices. Economic research shows that when there is no variety and diversity, you will see much worse results."
Why aren't trapped earnings a solution?
"These tax breaks on trapped earnings are a convenient solution for the political level because they do no harm, and citizens don’t feel the impact immediately. They just do not understand it today because it lowers the revenue base in the future. We forgo taxes that we were supposed to receive in the future and collect less now. What we need to address is the structural deficit. This is the critical thing. That’s why we have opposed it over the years because we do not want to give tax benefits to the strongest populations, when ultimately the public will lose part of these revenues in the future. Trapped earnings will not solve the structural deficit. For the coming years, it is very important to take revenue measures that will address the structural deficit."
