Minister of Finance Yuval Steinitz is today organizing a conference in New York to attract overseas investors to Israel because investors are moving out of the country. The crisis in Europe and the threats from Iran are not really helping the situation. However, the best thing that Steinitz could do is what investors really want, and provide the economy with fiscal certainty and stability. That's not what is really happening. The mounting deficit climbed to more than 4% in August - double the original target, and there is no economic policy for 2013. Conferences won't help that.
How did this government lose control of the budget deficit? Mistakes were made in both revenues and expenditures. It's most convenient to blame officials especially Udi Nissan the former Ministry of Finance budget director. It's true he gave an odd tax forecast for 2012, which was NIS 14 billion higher than the real income - an almost unprecedented deviation, although he had been forced to make his prediction in mid-2010 because of the well-known invention called the two year budget.
Regarding expenditure it was Steinitz together with the overseer of the economy Prime Minister Benjamin Netanyahu that did not know how to stand in the breach and paid out checks worth double the amount permitted. Netanyahu and Steinitz also didn't know how to stand up to the Histadrut and the workers committees that squeezed them dry. This is a failed budgetary policy and now the bill must be paid. NIS 11 billion in cuts and more tax rises on the way following NIS 10 billion in tax rises already imposed. There is nothing smart and no social justice in raising the education or welfare budget, if you subsequently have to make huge cuts in all the other ministries. It's a fiscal failure.
Netanyahu who stars in all the surveys as the most successful minister of finance in Israel's history, has as prime minister committed every fiscal sin possible: he spent double of what he could and broke the budget framework. Throughout his term of office he managed a deficit above that agreed in the Maastricht Treaty (the European treaty agreeing that deficits should not rise above 3%), and most years he did not achieve the target that he set. But most of all Netanyahu did what he promised on every possible stage around the world that he would not do - he raised taxes. He raised every tax: VAT, companies tax, income tax, excise, tax on cigarettes, tax on alcohol, tax on capital gains, tax on gas royalties. Moreover, he even invented a new tax - a surtax on high earners. All these measures have not been enough to balance the budget and reach a stable deficit.
Now Netanyahu has reached new heights. During a period of economic, political, geopolitical and security uncertainty, he has decided not to decide. Thus he has pushed the economy even deeper into fiscal and budgetary uncertainty. There has never been a precedent for not having a budget at this stage of the year. The situation jeopardizes the economy. In recent days we have heard that Ministry of Finance officials, the Governor of the Bank of Israel and his people, the Attorney General and his advisors (Eugene Kandel) have all woken up and are beginning, in a whisper at this stage, to have their voices heard, in a way that does not insult of anger Netanyahu.
But it is not enough. The public must know in how much of a wretched financial state the government is. Steinitz must reassert himself as Minister of Finance and Netanyahu must decide - elections or a budget.
Published by Globes [online], Israel business news - www.globes-online.com - on September 10, 2012
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