The Bank of Israel’s new forecast looks at Hungary and Poland which have slid into illiberalism to predict the economic impact of a potential judicial overhaul. The reality could much worse than they believe
The Governor of the Bank of Israel provided on Monday a quantitative assessment of the potential financial loss to the Israeli economy if the government carries on with its attempt to overhaul the justice system.
According to Governor Amir Yaron, the legislation will cost 0.8 percent of Israel’s GDP, which is about 50 billion shekels (about $14 billion) per year and 17,000 shekels per year per household.
The Bank of Israel’s prediction relies on the experience of countries that undermined the independence of their judiciary and the reaction of credit rating companies. This is how they arrived at this alarming number that will be felt by every Israeli citizen – but won’t crush the economy. But isn’t their prediction too optimistic?
In Hungary and Poland, changes to the judiciary were introduced over a long period, while here the coalition aims to pass no less than 140 bills in one short legislative blitz. This will both crush the independence of the judiciary and harm dozens of other areas, branches and sectors of the economy.
Unlike Israel, Hungary and Poland are part of the EU, which restrains their legislative ambitions and supports them financially. Another difference is that while in other countries the populist ruler is indeed interested in deepening his control, it seems that in many cases he also tries to strengthen his country’s economy to benefit the citizens. But in our case, it seems that Finance Minister Bezalel Smotrich and his far-right friends are determined to destroy Israel’s economy as quickly as possible.
There’s a lot of evidence for this. On Monday, Smotrich opened a front against the chairman of the Histadrut labor federation Arnon Ben David. In an unprecedented move, Smotrich demands to sue the federation for last week’s general strike (which according to some reports was coordinated between Sara Netanyahu and Bar-David’s wife). Smotrich also wants to quickly advance legislation that limits unions, restricts the right to strike and reduces the membership fees that workers pay the Histadrut.
The same goes for the state budget. Indeed, the government approved a budget for 2023-2024, and it did pass the first reading in the Knesset. But now it’s evident that the numbers are completely outdated, don’t reflect the recent economic forecasts of its compilers, full of gaps and worst of all – Smotrich himself is crushing the budget. This is how the image of the Israeli government as a responsible authority, which is determined to maintain fiscal discipline, is also crumbling.
Official sources in the finance ministry don’t shy away from harshly criticizing Smotrich, partly because he was not involved in the crucial stages of preparing the budget. Is that a surprise? Not really.
Smotrich prefers to deal with anything that has to do with the judicial coup, to fight with the press and, above all, to travel around the world and set the diplomatic arena on fire. If Smotrich is an “angel of destruction” in the eyes of the Americans; if his actions may set the West Bank on fire and deteriorate the entire Middle East; and if only a small fraction of his time is devoted to economic concerns and much of it to confrontations – is the Bank of Israel’s prediction for our economy realistic?
I doubt it. Like the Bank of Israel, the OECD published yesterday its conclusions on the financial implications of the judicial coup. The report asserted that such legislation would harm Israel’s economy and stressed that no funds should be transferred to populations that don’t introduce core curriculum to children.
In the meanwhile, Smotrich’s Religious Zionism, Ben-Gvir’s Otzma Yehudit party, the ultra-Orthodox parties and about half of the Likud lawmakers loyal to Yair Netanyahu, led by Communications Minister Shlomo Karhi and Public Diplomacy Minister Galit Distal Atbaryan, draw Israel into a black hole of an alternative reality, in which there is no which logic nor economics.
Poland and Hungary have no such lawmakers, therefore the Bank of Israel’s prediction for a loss of 0.8 percent in GDP is too optimistic. If nothing stops them soon, the crumble of Israel’s economy will be much faster.
