The next Minister of Finance of the State of Israel, whoever he may be, is going to be a most unhappy man. The economic offices in Jerusalem know what the Minister of Finance has to do, but his chances of doing it approaches zero.
The economic columns in the press are already full of ten-point programs of economic steps the new government must take in order to pull the economy out of its recession. But the silent response of the Ministry officials shows that they will be satisfied with a single deed: Maintaining fiscal discipline through budget restraint. They are quite skeptical about private bills and economic reform.
The life of the Minister of Finance will be quite tough if the polls are borne out and Ariel Sharon becomes the next prime minister. Sharon intends to run the economy from his own office, the Prime Minister’s Office.
Top economic officials fear that Sharon will give priority to public considerations, camouflaged by national unity. They fear that he will be more considerate of the Histadrut and the powerful workers committees – such as those of the Israel Electricity Corporation or Ports and Railroads Authority – with less consideration for the good of the economy as a whole.
The biggest problem appears to be the fragmented political structure of the Knesset, which prevents the implementation of any economic policy. MKs pass private bills wholesale, making budget planning an exercise in futility.
Furthermore, there is a high chance of general elections. This a priori makes any new government a temporary one, even if it survives until November 2003. The probability of new general elections pushes the government into election economics from its first day in office. In other words, political considerations will trump economic ones, even assuming that an independent professional echelon worthy of the name in the Ministry of Finance is capable of pointing out professional considerations and the general economic interests of the economy.
Another problem facing the Minister of Finance is the economy’s starting point. Since mid-1999 and until the outbreak of the disturbances, economic growth reached 7-9%. It is now in a deep slowdown, if not outright recession.
This means that tax revenues are down, while expenditures are up, due to the rise in defense expenditures and the expensive wage agreements signed by Avraham Shochat.
These are trouble enough in themselves. For the same reasons, the Minister of Finance will find it hard to pass economic reform legislation, such as income tax reform and tax benefits for high-tech, pensions and transfer payments in the banks and capital markets. The senior officials say that the identity of the Minister of Finance is irrelevant. The moment he enters the Ministry, he will take the shape of the chair he will sit in.
Once he gets past all these matters, the new minister will have to face off against the strongest man in the Israeli economy – Governor of the Bank of Israel Dr. David Klein. Abandonment of the budget and non-compliance with economic policy will force Klein to tighten monetary policy, even halting the reduction of the interest rate, precisely at a time when a sustained and gradual reduction is required.
In the background, according to Major Rumor, are the predecessors: Former Minister of Finance Yaakov Ne’eman and former Governor of the Bank of Israel Jacob Frenkel, with whom, the sources say, Sharon likes to seek advice.
If this is the situation, the officials reiterate, the identity of the Minister of Finance is irrelevant. After a few months of tension and battle, he will simply be forced to toe the line of the Maastricht criteria.
Published by Israel's Business Arena on 6 February 2001