Economists welcomed Finance Minister Binyamin Netanyahu's
economic recovery plan, citing the positive nature of the
Treasury's proposals to reduce public sector spending and cut
government allowances. The question is whether political
realities will force it to be significantly changed.
At the center of the Netanyahu plan is a NIS 11.4 billion cut
in spending -- despite approximately NIS 2b. in additional
defense spending -- that comes from an average 8 percent cut
in public sector wages (6.5 percent- 21 percent), layoffs of
some 4,000 state employees in 2003, and freezing of National
Insurance Institute allowances. Additionally, Israelis will
see a 5 percent hike in water tariffs, public transportation,
and municipal taxes.
Public sector workers earning up to NIS 7,000 per month will
have a 6.5 percent pay cut, up to NIS 14,000 - 11 percent, up
to NIS 21,000 - 16 percent, and senior civil servants earning
more than NIS 21,000 will see a 21 percent salary cut.
While the plan calls for the cancellation of almost all
geographic tax benefits, it also entails lowering the
marginal tax rate to 49 percent by July 2005.
Other recommendations include raising the pension age to 67,
cancellation of certain benefits to immigrants, mortgage
grants, need-blind university scholarships, and massive
privatization of state-owned companies, including El Al
Israel Airlines, Oil Refineries Ltd., Israel Aircraft
Industries, and Israel Electric.
"The plan itself is impressive and comprehensive," said
Jonathan Katz, a private economist in Jerusalem. "It attempts
to deal with all sectors. The real question is what are the
chances of its full implementation, especially with the
political problem of tax benefits."
Economists agreed that the present economic situation offers
Netanyahu few options. "There is the Histadrut on one side
and Palestinian terrorism on the other," said one. "Right now
it does not matter who is finance minister. Whether it is
Netanyahu or [Avraham] Shochat, cuts must be made. The only
real difference between Netanyahu and Shochat is their
approach to chareidim and settlers."
"We expect a tough time. The main principle is to restore the
public's confidence in the economic leadership and the
economy," Netanyahu said in explaining his plan.
New immigrants will lose their right to buy passenger
vehicles at reduced customs charges, and VAT exemptions on
the purchase of new furniture will be eliminated. Returning
Israeli residents will also lose their exemptions on
acquiring household furniture. In addition, all mortgage
grants, including those for new immigrants, will be
canceled.
Netanyahu and Treasury officials further revealed that all
National Insurance Institute allowances will be frozen at
their current levels, meaning changes due to inflation will
not occur as in previous years. Child allowances in
particular will be made uniform, at NIS 150 per child.
The entire public sector will go on a financial diet.
"The public sector in Israel encompasses 55 percent of gross
domestic product, and the producing [private] sector 45
percent of the GDP. The public sector must be cut, and the
private sector increased. This is the essence of our economic
plan," said Netanyahu.
The cuts in funding include: NIS 3.5b. in state workers'
wages, NIS 3b. from government ministries, NIS 2b. from NII
stipends, allowances, and benefits, NIS 1.2b. from
cancellation of geographic tax breaks (northern confrontation
line, Negev, and the territories), NIS 1.3b. from elimination
of mortgage grants, and NIS 600 million from cuts in
assistance to local authorities.
The plan will also bring in NIS 600m. in taxes on employment
of foreign workers, NIS 500m. from taxes on lottery winnings,
NIS 400m. from increases in public transportation fees, and
NIS 2b. from other specific measures.
Netanyahu said the deficit target, expected to be raised to
3.9 percent of GDP, will be kept for now at 3 percent of
GDP.
Details of measures in the plan:
* Raising of pension age to 67 for both males and females by
2009.
* Elimination of government bonds for pension funds.
* Cancellation of Israel Broadcasting Authority levy,
effective January 2004 and allowing Channel 1 to show
commercials.
* Unification of some 266 local authorities to no more than
150-200.
* Yeshiva students 22 to 28 years old will be allowed to work
and keep their draft deferment.
* NIS 100m. cut in state subsidies to the Dan and Egged bus
cooperatives.
* Government geriatric hospitals to be privatized.
Histadrut Chairman Amir Peretz characterized Finance Minister
Binyamin Netanyahu's economic program as a list of
"discriminatory decrees."
Finance Minister Binyamin Netanyahu met with ministers from
all three of the Likud's coalition partners -- Shinui, NRP
and National Union -- to persuade them to support the
plan.
However, their efforts apparently went for naught: Welfare
Minister Zevulun Orlev (NRP) told Israel Radio that his party
intends to vote against the plan in the cabinet meeting
unless significant changes are made, while Army Radio
reported that Justice Minister Yosef Lapid made the same
threat on behalf of Shinui.
The plan for NII grants is to pay a uniform child allowance
of NIS 144 a month for all children born after May 1, 2003,
and allowances for children born before that date are reduced
to this level over a four-year period. Currently, parents
receive NIS 150 a month for their first two children and
progressively higher amounts for each additional child.
