Israel-Hamas war harms economy, but ministers fight over paying the bill


In the four weeks since Operation Swords of Iron began, many businesses, especially those down South, have been affected and require aid from the government to keep existing. On Thursday, the Knesset voted in the first reading of a draft for an economic aid plan for businesses, but behind the plan lies a fierce political face-off.

On one side, stands Finance Minister Bezalel Smotrich. Finance minister is Smotrich’s first role in finances, and he has no background in finance management or business. Even so, the Religious Zionist Party leader’s ministry is the one responsible for allocating the funds, but in recent weeks, the ministry has faced heavy criticism, as many accused it of being absent and out of touch with the people who require the aid.

Last week, the Finance Ministry presented an outline for economic aid during a Finance Committee meeting at which neither Smotrich nor the ministry’s director-general, Shlomi Heizler, were present.

The outline was heavily criticized throughout the meeting for a number of issues it held, including a 7-km. limit, in which businesses up to 7-km. from the Gaza border would be compensated more thoroughly than those outside that range, despite many businesses further out requiring the aid just as much. Representatives from the business sector who were present at the meeting also said the compensation system dictated in the outline was not sufficient for the sector’s needs.

On the other side of the conflict stands Economy Minister Nir Barkat. The richest politician in Israel, Barkat has experience running his own businesses and was mayor of Jerusalem between 2008 and 2018.

Economy Minister Nir Barkat speaks the Jerusalem Post Annual Conference. June 6, 2023 (credit: MARC ISRAEL SELLEM)

At last week’s meeting, the economy minister presented his own outline which didn’t include the 7-km. limit and proposed higher grants for businesses with an annual cycle of up to NIS 100,000. It also used a higher coefficient to calculate grants for bigger businesses as well as a higher maximum grant.

Barkat said he had consulted with representatives of the business sector, workers sector, and self-employed sector while formulating his outline, and accused Smotrich of ignoring them and not taking them into account.

“The Finance Ministry presented an outline that I told them isn’t ready, and I’m worried,” he told the committee.

Later the same day, he once again spoke out strongly against the Finance Ministry and its outline.

“Unfortunately, the Finance Ministry decided to present an outline that wasn’t ready, while ignoring the representatives of the business, self-employed, and workers sectors and the opinion of the Economy Ministry,” said Barkat. “This is an outline that will create an economic post-trauma in the State of Israel. At this moment, when businesses need the state’s assistance, the Treasury locks the account and leaves them to their fates.”

The Finance Ministry made some changes to its original outline, and the draft was voted on in the Knesset on Thursday in a special plenum session which Barkat was absent from. The draft contained a combination of elements from Smotrich’s and Barkat’s plans but was more heavily based on Smotrich’s original outline.

Even though many still voiced criticism of the final draft both from within the Knesset and externally, it passed its first reading with the unanimous vote of all 14 of the MKs present in the plenum from the coalition and the opposition. However, the image from the Finance and Economy ministries did not indicate cooperation and compromise.

During a socioeconomic cabinet meeting on Tuesday, which Prime Minister Benjamin Netanyahu chaired even though he had appointed Smotrich to fill in for him during the duration of the war, the finance minister criticized Barkat’s attack on him during last week’s committee meeting.

“It’s inconceivable that you are using Knesset committee meetings to attack me and my plan,” he said. “It’s a shame that there are people who use press conferences to do so and aren’t working properly.”

What followed was later described as a shouting match, with Barkat responding by telling Smotrich that he doesn’t understand the significance of the situation.

“You’re blindly following officials in your ivory tower instead of listening to people on the ground,” he accused. “What are you waiting for?”

When Smotrich told him not to get involved and that the outline was his responsibility, Barkat told him that he wouldn’t “sit quietly while you destroy the economy.”

Meanwhile, Barkat is favored in this power struggle by entities in the business sector who say his outline would allow businesses to survive, while Smotrich’s discriminates against the workers and elderly people who are working but not included in the plan.

“I ask the prime minister: Would you allow Smotrich to manage your investment portfolio or the Netanyahu family’s bank account?” said Histadrut Self-Employed Forum chairman Rami Beja last week. “Or would you give it to someone like Nir Barkat, who understands something about money?”

The National Labor Federation also called for Barkat’s outline to be adopted by the government with minor corrections. The federation’s chairman, Yoav Simchi, was among those criticizing the draft that was voted on in the Knesset on Thursday, saying that “hundreds of thousands of workers around the country need to understand that the Finance Ministry’s outline will leave them without a salary for the days they were absent in October, even if it was because of the closure of the education institutions, and at best will leave them with 25% less in their salary.”

While Barkat has earned the overwhelming support of the business sector in this power struggle, Smotrich has also been facing pushback from within the government, with ministers such as Education Minister Yoav Kisch, Transportation Minister Miri Regev, and Tourism Minister Haim Katz criticizing his management of the situation during Tuesday’s cabinet meeting.

In the background of all this, stands the elephant in the room, which is what happens after the war. With Netanyahu significantly losing the faith of the people, and the Likud scoring an all-time low in polls since the beginning of the war, he will very likely not be seeing through his full term as prime minister, and the Likud may very well see a change in leadership.

If Barkat wants to run to lead the party next, being responsible for an outline that rescues Israel’s business sector during this war would certainly place him in the spotlight and could very well make him a contender in the race.

On the other hand, Smotrich is struggling to maintain an image of being in control of the situation, as he absorbs criticism for his ministry’s absence and lack of response during this time, alongside criticism and weaker support from his fellow ministers. With his Religious Zionist Party losing seats in recent polls, he may need to exhibit more control and effectiveness to win them back.