The Knesset Finance Committee met today with Minister of Finance Benjamin Netanyahu and senior ministry officials.
Netanyahu said the economic situation was still dire. "Emerging from the cycle of poverty can be achieved by creating growth and switching from selfare to work. Restoring allowances is out of the question, because that's a prescription for economic catastrophe," he said.
Ministry of Finance chief economist Dr. Michael Sarel told the Finance Committee that growth in 2004 is expected to be higher than in the past three years. He said the interest rate was not been cut fast enough to achieve the inflation target.
Sarel said, "In the past year, the government has succeeded in reducing the number of foreign workers. In the past year, Israelis have replaced foreign workers, including in the construction industry."
He continued, "There has an increase in participation in the labor force this year, and we expect this trend to continue in 2004."
On this subject, Netanyahu said, "We have a clear plan to end the situation in which people don’t work, while receiving money. If the Finance Committee pitches in, we can change this situation. Reducing the number of foreign workers and providing incentives to work will bring about the desired situation."
Commenting on Israel's large gaps in social welfare, Netanyahu said the Ministry of Finance was now working on a detailed plan to reduce these gaps.
Netanyahu also said that Israel's banking system was over-centralized. "The three large banks control over 70% of the market, far more than in other countries. This situation discourages competition, resulting in high interest rates and fees. We plan to private two of the three state-owned banks - Bank Leumi (TASE:LUMI) and Israel Discount Bank (TASE:DSCT)."
Netanyahu added, "In order to carry out privatization, we must deal with the structure of the Banking Supervision Department. The structure is convenient for regulator, but will not withstand the needs of publicly traded banks."
Ministry of Finance director-general Ohad Marani submitted the proposal to amend the Banking Ordinance (1941) regarding privatization. He said the purpose was to create a mechanism to sell the state-owned banks so that no one entity would havea controlling interest. "State-owned banks are a mistake. The biggest problem is that the government has always had a policy of selling a controlling interest in the banks to a strategic investor," he said.
Supervisor of Banks Yoav Lehman stressed to the Finance Committee the importance of the Marani committee amendments to the Banking Ordinance. "This is a revolution in Israel," he said.
Responding to a question by MK Orit Noked (Labor-Meimad) whether VAT would lowered from 18% back to 17%, Netanyahu said, "VAT will not be lowered, because there is a lack of funds."
Published by Globes [online] - www.globes.co.il - on August 28, 2003