Without anyone noticing, credit rating agency Moody's warned this week that Israel's budget deficit is liable to reach 4% of GDP this year. Minister of Finance Moshe Kahlon called a press conference to deliver a soothing message to Moody's and the other international credit rating agencies: "The Ministry of Finance is committed to preventing economic deterioration," Kahlon said, and repeated, "We will behave responsibly" several times.
Don't worry. Kahlon has no intention of taking dramatic measures to reduce the budget deficit. All he wants to do is to prove that "his" plans, such as the Buyer Fixed Price Plan and Neto Mishpacha, will not be affected as long as he remains in his position. Netanyahu's transitional government could raise taxes, but doesn't really want to. National Economic Council chairman Prof. Avi Simhon, Deputy Minister of Finance Yitzhak Cohen, and others, strongly oppose raising taxes, because they say it will detract from economic growth and activity. Cutting spending, they explain, is enough to reduce the deficit to reasonable proportions. The Bank of Israel argues that the opposite should be done: spending should be increased in areas such as education and infrastructure in order to help the economy grow. The Bank of Israel recommends addressing the budget deficit by eliminating tax exemptions that create distortions. The problem is that the tax exemptions serve interests and pressure groups, and if there is anything that politicians hate doing, it is contending with pressure groups and interests for the sake of a clearly non-electoral purpose like the public interest. How will this wind up? Everyone knows. For lack of choice, the Ministry of Finance will carry out a "stupid budget cut" across-the-board.
Throwing away NIS 1.2 billion
What about streamlining? Streamlining is the first measure taken by a firm that has to overcome a budget overrun. Israel Inc. is the biggest and most inefficient firm in the economy, but when have you ever heard its CEO, the minister of finance or the prime minister, talk about streamlining?
The previous governor of the Bank of Israel thinks the government should streamline. "Spending in all areas should be thoroughly scrutinized," Karnit Flug told "Globes" last week. "There are places in which money can be diverted from less efficient spending to more efficient spending."
The state spends NIS 400 billion a year. The managers responsible for spending this money have no incentive to streamline. For them, it is other people's money, and that is a guaranteed formula for waste and corruption. The shareholders in the Israel Inc. firm, i.e. Israeli taxpayers, have no general shareholders meeting or ability to oversee what is done with their very limited money.
One of the few oversight tools we have is the State Comptroller's reports, in which it is easy to discover how billions are wasted. Take one section from the last annual report published by the State Comptroller in May - the section on the civil service training program. How much does the state throw away each year on training its employees? After failing to get answers from those responsible for the training program, the State Comptroller did his own calculations, and arrived at the unimaginable sum of NIS 1.2 billion. You will say that training employees is an essential expense for any firm, and that is true. The thing is that the state's training program is outmoded, inefficient, and in need of a serious shakeup. Consider this: only 43% of the training budget is spent on training that involves the employees' main jobs. The rest is wasted on "formal education, enrichment and team spirit building, and teaching development," in the State Comptroller's restrained language.
Taxpayers should not have to pay for state employees studying foreign languages, their outings, day camps for their children, or other extravagances. There is no reason why the state should not cut hundreds of millions off this deep tub of fat, which contributes nothing to economic growth and does not improve services for people. Kahlon and his people should stop beating about the bush. Streamlining does not need an elected government or a Knesset majority. All it needs is taking some responsibility.
Published by Globes, Israel business news - en.globes.co.il - on October 3, 2019
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