Israel's new government likely to support growth but remain fiscally responsible

ISRAEL - In Brief 03 Jun 2021 by Jonathan Katz

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Last night, Yesh Atid (Lapid) announced to the President that a coalition has been formed making up 61 mandates (out of 120) consisting of eight parties, including one Arab party. Although it appears like a done deal, we cannot rule out some surprises (deserters from the right-wing party Yamina) until the approval vote in the Knesset which could take up to 10 days. Assuming this government is sworn in, what should we expect on the economy policy front? We note that the broad coalition of both left-wing and right-wing parties will not tackle the Palestinian peace issue, and that the main agenda for this government is economic recovery and hopefully some “healing” internally. Some key points: 1.Naftali Bennett will serve as PM for the first two years in the rotation agreement and then Lapid. Bennett is very supportive of the private sector (having established a start-up company himself) and will strive to stimulate growth and encourage employment. This will most likely include doing away with the additional government unemployment support provided since the Covid crisis, as quickly as possible. 2.Assuming the ultra-orthodox parties do not end up joining this coalition (right now they are firmly in the Netanyahu camp), we should expect several reforms including mandatory secular studies such as mathematics, English, etc. in all government funded schools. We should see incentives for the ultra-orthodox to enter the labor force. We expect that some of the large fiscal support going to this sector will be reduced as well. We note that the Minister of Finance is Lieberman: who is very critical of the fiscal support for the ultra-orthodox. 3.The coalition will most likely push...