Even as the headlines are filled with reports of coalition
negotiations, and questions of whether there will or will
not be a "unity" government including the Labor Party, new
plans are being laid for the budget which are likely to have
a greater impact on more people in Israel.
The budget for 2001 that was originally prepared was built
when things looked great for the Israeli economy.
Approaching Fall, 2000, growth was high, unemployment was
falling and hi-tech was flourishing in Israel. Even though
the stock market bubble had popped in the United States, the
economy there still seemed strong.
Then the Al-Aksa intifadah started on erev Rosh Hashanah,
dragging down tourism and making investors somewhat afraid.
Also, perhaps even more importantly, the United States'
economy showed serious signs of an economic downturn that
has continued into what appears likely to be a full-fledged
slowdown. Interest rates in Israel are still fairly high.
The result is that the conditions which were assumed at the
time that the 20001 budget were planned have changed
considerably.
Prime minister-elect Sharon has already moved to adapt the
budget, which was not passed by the previous Barak
government, to the new conditions. To this end, the deficit
in the 2001 budget is planned as 2.5 percent of the GDP
instead of 1.75 percent, adding NIS 3.6 billion to the
previously planned outlays. The budget deficit in 2000 was
2.5 percent of the Gross Domestic Product.
The moves parallel the steps being taken by the new Bush
administration in the U.S. in reducing taxes to provide
fiscal stimulus to the American economy.
In a meeting Monday between Sharon and leading figures in
the Israeli economy, the prime minister-elect said that the
extra money would go toward the development of both physical
and human infrastructure, primarily in education.
It was already his second meeting with members of the
business sector since the election and even before he has
formed his government. Nonetheless, Sharon outlined a number
of the economic measures he intended to implement as head of
the economic-social cabinet, emphasizing privatization of
government companies, the reduction to a minimum of
government intervention in the economy and the promotion of
competition.
The prime minister-elect, though he is not known for his
experience economic affairs, seems to have quickly learned
the generally accepted modern principles of economics
management. These points are on the short list of what most
observers say is wrong with the Israeli economy.
The prime minister-elect said he intended to afford
preference to the high-tech field in order to prevent a
brain drain. This would be achieved, he said, by means of a
reduction in the tax burden and the unification of
regulations.
When determining the deficit target for 2001 last September,
the treasury, encouraged by Bank of Israel Governor David
Klein, also declared a declining multi-year deficit target,
setting a rate of 1.25 percent of the GDP from 2003 onward.
That target corresponds with the accepted deficit target of
the European Monetary Union known as the Maastricht
agreements that paved the way for the introduction of the
unified currency in Europe, the Euro.
In the meeting on Monday, Sharon said that he would work to
implement a long school day, to improve the professional
training of teachers and to better their employment
conditions. He called on the leaders of the business
community to exercise their influence in order to ensure the
establishment of a unity government.
Sharon said that unity was important both for promoting the
political process and also for creating stability in the
economy and reinforcing Israel's international economic
standing. A unity government would also improve Israel's
ranking on the international capital markets, he said.
All the speakers at the meeting adamantly called for a
reduction in the real interest rate in the economy. Moti
Zisser charged that bureaucracy and foot-dragging in the
government ministries constituted tough obstacles for the
economy.
The heads of the Coordinating Bureau of the Economic
Organizations initiated a meeting yesterday with Barak and
called on him and the Labor Party to put aside their
personal considerations and aspirations and join a unity
government. The economic situation was deteriorating due to
the situation around the world and in Israel, because there
was no budget and in light of the drawn-out negotiations to
form a government, they said.
The chairman of the bureau, Oded Tyrah, met later with
Knesset Speaker Avraham Burg and asked him to support the
establishment of a unity government. Burg said he intended
to be among the leading supporters of such an initiative.
