"Not taking these measures will inevitably lead to much harsher measures, like the ones now happening in Europe, while increasing unemployment and severely harming social services," Ministry of Finance Budget Director Gal Hershkowitz told "Globes" today. Hershkowitz, the architect of the fiscal package that the cabinet will vote on Monday, warned against the possibility that the cabinet will reject the measures.
"Globes": The fiscal package is a major achievement for the Budget Department. Two weeks ago, no spoke about anything.
Hershkowitz: "True. It is our responsibility to prepare and present the measures needed to meet the targets set by the government, to present the government's credibility in the financial markets, and to stand on guard against the deficit."
Some of the support you won over the past two weeks came from external parties - Spain, Greece, and the credit rating companies, which began to apply pressure.
"The ratings companies expected the government to draw up a list of clear and important measures that would show how it intended to meet the targets it set. A failure to draw up such measures was liable to cause a sharp slide toward financial crisis, which would have sent prices far higher than the measures formulated now. That is why an immediate decision and immediate implementation are so important."
The package would have been perfect had it included, instead of a VAT hike, the cancellation of tax exemptions. Why did you skip over these?
"As for the mix, we examined the significance of all the alternatives, and presented them to the decision-makers. They, after long and serious discussions, accepted the decision about the current mix."
We know that you do not just propose. As professionals, you have a say. Why didn’t you insist? Isn't this a missed historic opportunity to correct distortions?
"That's true. There are definitely tax distortions, especially with regard to exemptions, which in my opinion, irrespective of the current situation, should be corrected."
What are the intentions about this for the future?
"We will implement all the measures needed at any moment, as the changing reality develops."
So you conceded.
"At this time, this is the package. I emphasize: we will take more action as needed."
The fiscal package is supposed to generate NIS 14.5 billion in revenues in the best case. NIS 5 billion depends on the effectiveness of the trapped profits and the war on black capital. Did you take this into account?
"I hope that the forecasts set for the trapped profits will materialize, but as I said, especially given the great uncertainty, we will monitor developments on all economic indicators, and we'll take more measures as needed."
So you'll look Israel's people in the eye, and tell them that these are half-measures? That there is a need to cut the budget by an additional NIS 13.5 billion?
"It should be remembered that the 2013 expenditures are expected to increase by more than 3%. This is the largest real increase in the past decade. It's true that, at the same time, extensive commitments have been accumulated, beyond the permitted increase, so we're talking about reducing the additional expenditures. This means that we're talking about the setting of the right priorities as part of the supplements that will be granted."
Nonetheless, adjustments, i.e. budget cuts, must be made amounting to billions of shekels.
"That's correct. We'll have to reduce the extra commitments that were promised."
As for priorities, what will be the economic policy goal for 2013?
"Increasing growth and reducing social gaps. Obviously, the goal should be reflected in the make-up of the budget, which will give priority to issues like human capital, education, infrastructures, public transport, and jobs."
If you cannot make the cuts or implement the adjustments in education and jobs, where there are no lobbyists and pressure groups, where will the money come from?
"The government will have to make the decisions."
You will have to cut the defense budget?
"The 2012 defense budget grew beyond what was set by the Brodet Committee. I believe that, in 2013, the defense budget will return to the structure set for it."
Are we facing a worsening economic situation? Are you ready for that?
"We will obviously draw up a list of measures needed if there is a deterioration in the global situation that affects the Israeli economy. That is quite possible. At the moment, we have positive per capita growth. We were only scratched by the global crisis, and if the global situation deteriorates, we are definitely liable to be greatly affected, in which case we'll have to take additional measures. If we have to, we'll take more measures beyond the ones already approved."
What about the 2013 budget? Will you finally begin the discussions, and will you have time to complete them?
I believe that we'll soon begin discussions on the 2013 budget, and that we'll act to meet the timetable set."
Will there be a new budget on January 1, 2013?
"Yes."
You're aware of the criticism against you that you fell asleep on the watch and only woke up in mid-June, instead of in January.
"The worsening slowdown, especially in the past few months, requires necessary adjustments. In May, we saw a major slowdown, and the tax forecast was only updated in June. I was not asked to submit, either in January or in February, for 2013, a deficit target of 3%, which was only set a month ago. It is not possible to submit measures for 2013 so long as there is no deficit target; it's only possible afterwards. On the contrary, I brought it forward: I could have waited until the fiscal aggregates for 2013 were prepared. I brought it forward, to provide a response to the 2012 deficit. The decision about the measures will made after thorough consideration on the basis of data analysis, and without panic. That is what we did and what we will continue to do."
Published by Globes [online], Israel business news - www.globes-online.com - on July 29, 2012
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