TEL AVIV — Whoever wins Israel's election next week must answer demands for relief from soaring housing prices and a high cost of living, but the days of big state spending on social programmes are unlikely to return.
Opinion polls show that more than half of Israelis believe social issues and living expenses, which are much higher than in western Europe or the United States, are their top priorities in selecting a party on
March 17.
By contrast, fewer than 30 per cent say they are most concerned by the security threats facing Israel on which Prime Minister Benjamin Netanyahu, nicknamed "Bibi", has focused his campaign.
But even a centre-left bloc that is promising to ease the economic burden on citizens believes that driving up government spending is not an option.
"No way is that going to happen. That is a thing of the previous century," said Manuel Trajtenberg of the Zionist Union that groups the Labour Party and the centrist Hatnua.
"We have to be extremely careful with the [budget] deficit. We cannot afford to run high deficits," added Trajtenberg, a fiscal conservative whom Zionist Union has designated as finance minister should it lead the next coalition government.
Polls show Zionist Union of Labour's Isaac Herzog, nicknamed "Bougie", and Hatnua's Tzipi Livni is in a tight race with Netanyahu's Likud. However, the incumbent appears better placed to find more allies within a right-wing bloc to form the next coalition.
As in a number of European countries, the consumer price index is actually falling; it was down 0.5 per cent year on year in January.
But central bank figures for 2013 show a basket of basic products was 12 per cent more expensive in Israel than the average for wealthy nations in the countries grouped in the Organisation for Economic Cooperation and Development (OECD), while gross annual salaries were $10,000 lower.
On top of this, house prices have doubled since 2007, putting home ownership out of the reach of many young Israelis, while rents are also rising sharply.
In the summer of 2011, hundreds of thousands took to the streets in protests first set off by the cost of cottage cheese, a popular staple. Those scenes have not been repeated in the cold winter weeks leading to next Tuesday's election, but candidates have still been making reform promises.
Netanyahu, who is seeking a fourth term as premier, has addressed the cost-of-living concerns despite his focus on opposing a nuclear deal with Iran.
He has promised to eliminate an 18 per cent value-added tax on basic foods. His outgoing government had already begun to allow more food imports to boost competition while passing legislation to break up conglomerates.
One challenger, centrist Moshe Kahlon of the new Kulanu Party, has made no secret that he wants the post of finance minister no matter who forms the next coalition.
Kahlon, responsible for a steep drop in mobile phone rates by boosting competition as communications minister in a previous government, has proposed housing market reforms including freeing up more state-owned land for development, speeding up supply and removing bureaucratic barriers in the hope of lowering prices.
Polls suggest Kulanu will win nine seats in the 120-member parliament. If it breaks into double digits, strengthening its case for a place in the next coalition, this could make waves as Kahlon also wants more banking competition.
"If Kahlon gets double-digit mandates, it will be a short-term shock for capital markets," said Avihay Sorezcky, chief international strategist at IBI Investment House.
Best in the west
Some analysts are confident about the economy, regardless of whether "Bibi" or "Bougie" wins. "The election, no matter how it turns out, should not dampen the healthy growth and stable fiscal trajectory," said Elliot Hentov, director for sovereign credit ratings at Standard & Poor's.
The outgoing government's draft budget, which has now been shelved, set the 2015 deficit target at 3.4 per cent of the gross domestic product (GDP), up from 2.8 per cent last year largely due to higher defence spending.
Hentov expects this year's target to be only slightly higher under a new government at 3.6 per cent of GDP.
In 2003, when Netanyahu was finance minister, Israel shifted to a free-market economy. State spending was slashed in favour of the private sector driving economic growth, while the public debt burden has dropped.
Since then, Israel's growth has been among the best in the West, but candidates looking to unseat Netanyahu say this has not helped families to make ends meet.
Trajtenberg, who supports a smaller defence budget, has unveiled a 7 billion shekel ($1.7 billion) plan to boost education and healthcare spending from 2016.
He told Reuters that as finance minister he would pursue reform under a housing "czar", something that would not cost the government money. He ruled out new taxes, although he would try to expand the tax base and lower the salary threshold for filing a tax return.
"Regardless of who forms the next coalition, the basic macroeconomic policies such as budgetary discipline, will not really change," said Joseph Bachar, chairman of Israel Discount Bank and a former finance ministry director general.
Eldad Tamir, chief executive of brokerage Tamir Fishman, forecast a measured approach to reform whoever wins. "I don't see any government taking any major risks because there won't be a big winner," Tamir said.
"War is something we live with all the time, now all that interests me is keeping the refrigerator full," Levy said at a grocery shop in a market in the Talpiot fruit and vegetable market in the northern city of Haifa.
Levy, who describes himself as a lifelong Likud voter, is a member of Israel's Sephardic community, Jews of Middle Eastern descent who, attracted by a tough stance towards Arab enemies, have traditionally been the party's backbone.
Political analysts say Sephardim who are disproportionately poorer than Israel's Ashkenazi Jews with roots in Europe, may throw their support elsewhere in the March 17 election, angry over the high cost of living and housing prices.
Netanyahu's battle to preserve Sephardic backing in Israel's lower-income areas is being played out in places such as the Haifa marketplace and Mahane Yehuda market in occupied Jerusalem, where the prime minister himself made an appearance on Monday.
But in a departure from tradition, reporters were not given advance notice of Netanyahu's visit, a sign, some commentators said, of campaign concerns of a lukewarm welcome in what has long been a bastion of Likud support.
Video that emerged from the visit showed shoppers applauding Netanyahu as he promised them a "prosperous Jerusalem" if they voted Likud.
Small change
But one café owner, who served Netanyahu a latte, said she made a symbolic protest by handing him 87 shekels ($22) in a fistful of coins as change for his order, which he paid for with a 100 shekel ($25) bill.
"It was important to remind him that while he invokes the Iranian [nuclear] threat, we, the small business owners, have a daily struggle to earn even small change," she said.
Likud dispatched a fiery Sephardic legislator, Miri Regev, to the market in Haifa to make its case.
"You have to vote for Likud, we've done more than anyone," Regev, a former brigadier general and political hardliner of Moroccan origin, shouted through a microphone at shoppers.
Regev, 49, has been visiting far-flung and hardscrabble towns in a trailer emblazoned with her portrait and the Likud logo.
"The more that people from the periphery go and vote, the greater the number of votes there will be for Likud," Regev told Reuters over a spinach turnover, a popular Sephardic dish.
Shmuel Sandler, a political scientist at Bar-Ilan University near Tel Aviv, acknowledged "a traditional vote for Likud among Sephardim". But he added: "It's not totally clear this time how it will go."
In the Haifa market, some shoppers of Sephardic descent said they were weighing whether to switch their vote from Likud to a party with what they hope will be a more economics-minded agenda.
"Bibi has spit in our face. I don't believe in anyone anymore," shopper Shaul Sabag said, as Regev passed a vegetable stall where he stood. Levy, a cleaning materials salesman, said he also preferred not to cast any ballot at all.
Gideon Rahat, a political scientist at the Hebrew University of Jerusalem, said Levy's case was an example of how poorer Israelis were growing more alienated from politics, once a rarer phenomenon in security-minded Israel than elsewhere.
"The ethnic vote doesn't necessarily help Likud anymore, but that doesn't mean they will swing behind Netanyahu's rivals, either," Rahat said. "Anti-Netanyahu sentiment won't necessarily push people to vote for another party; they may just not vote at all."
But Likud may be able to make up for lost votes if it partners with several centrist and religious parties that have been focusing on the Sephardic electorate.
Ultra-Orthodox Shas, or Sephardic Torah Guardians, and Kulanu, a centrist faction advocating economic reform, have signalled they would prefer to join a government headed by Netanyahu rather than by Herzog.
