Surprise Israeli election results: It’s the economy, stupid

Israel

Israel’s surprising 2013 general election results weaken Prime Minister Benjamin Netanyahu’s political power, which has wider ramifications on the economic and political landscapes in Israel, the region, and beyond. The election results reduce the likelihood of an Israeli strike on Iranian nuclear facilities, assuming the governing coalition moves toward the center. This could lead to lower global oil prices, because it would help reduce a key risk to MENA regional stability in the short term.

A pre-election poll by Ha’aretz Daily explains some of the underlying factors that influenced the surprise gains for leftist and centrist parties. Only 10% of Israeli voters ranked Iran’s nuclear program as the most important issue that they were considering, while nearly 50% cited socioeconomic issues as their top concern. Security issues remain important, but companies should expect the next government to prioritize addressing economic issues like high cost of living, income inequality, the budget deficit, and social benefits for ultra-religious groups.

Netanyahu and the Knesset will be under pressure to rebalance the Israeli economy, while following through on campaign promises to not raise taxes. One consequence could be tax hikes on large companies rather than Israeli citizens to raise government revenue. To address a widening budget deficit, Israel’s central bank is calling for tax hikes and significant cuts to the state budget for education, healthcare, infrastructure, and defense. The central bank governor also warned that failing to raise taxes and cut the budget will result in significantly higher budget deficits for several years.

 

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