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Treasury: A huge deficit in 2010 could destroy us By Moti Bassok Tags: budget, treasury, israel news  When the new government forms after yesterday's elections, it will receive an economy in crisis. Moreover, treasury officials are terrified, not of the giant deficit this year, but of giant deficits in the following years, which would be the road to ruin. The figures are frightening. Tax collection in 2009 will fall as much as NIS 40 billion short of earlier estimates. The budget is already short about NIS 10 billion to meet costs because of Operation Cast Lead and other past and future demands from the defense establishment. Almost a third of that NIS 10 billion comes from the military campaign in the Gaza Strip, and never mind that it's over. It cost NIS 3 billion, which has to come from somewhere. Advertisement Then there is an amount to be allocated to the leverage funds, which are supposed to be joint government-private vehicles (still in the envisioning stage) to rescue businesses in trouble. These funds are supposed to lend troubled companies about NIS 5 billion (although some observers now think the state can get away with lending less). A third element is around NIS 1.5 billion to cover the demands of coalition partners in the new government, say people in the Finance Ministry. The upshot is that with tax collection falling far short of the estimates on which the 2009 budget was based, and with costs surging far above expectations, the 2009 budget is apparently about NIS 50 billion short. And that, dear reader, is equivalent to 7% of Israel's gross domestic product. The 2009 deficit, which should have been 1% of GDP, will likely be 5%, no more, because Israel simply cannot allow itself a larger deficit. The Finance Ministry plans to slash budgets by about NIS 8 billion from defense spending, education, welfare and healthcare. How much these essentials can be spared depends on the next government's support for reducing defense spending. The government plans to finance the deficit by raising money through further local bond issues, and overseas too, by utilizing U.S. guarantees to raise money at relatively low cost. It would step up the activities of the Israel Bonds organization. The treasury would prefer to raise money by taking advantage of the rest of the $9 billion in guarantees granted to Israel by the United States in 2003, during the second intifada. That gave Israel the right to issue $9 billion worth of bonds on the U.S. market, repayment of which is guaranteed by Washington. American backing for the bonds means that the interest Israelis have to pay on the bonds is as low as possible - just a hair above the rates on comparable bond issues backed by the Federal Reserve. Israel has used only $4.4 billion of the guarantees. The last time the state issued bonds in the United States backed by the guarantees was in 2004. However, the United States plans to deduct $1 billion out of the remaining $4.6 billion, to punish Israel for its investments in territories beyond the Green Line. If Jerusalem can't reverse that decree, it will still have $3.6 billion in guarantees. In any case, the Finance Ministry wouldn't blow the whole amount inside a year: It would probably spread the amount to 2010 and perhaps 2011 as well. Everybody at Finance agrees that Israel's problem isn't just a giant deficit this year. It's the state of the economy in the following years. The Finance Ministry does not dismiss the importance of the deficit in 2009, but it's a lot more worried about the deficit of 2010. We can deal with a one-time high deficit, say officials, but a high, multiyear deficit could destroy Israel. The aim of the 2009 budget, which will be approved in May at the earliest, and that of 2010, which (hopefully) should be submitted for cabinet approval in August or September, is to attain manageable deficits and decrease them over time. The Finance Ministry says that if the world begins to emerge from its crisis in 2009 or 2010, Israel could achieve modest economic growth. But ministry chieftains say the way to keep spending under control is to trim the defense budget. It's not a new idea, yet it's a revolutionary vein of thought. What we have is top Finance Ministry people admitting up front that Israel can't increase its defense budget by NIS 100 billion in 10 years. The new government, they believe, is going to face hard choices on this issue. Bookmark to del.icio.us   A scared Arab in Israel Sayed Kashua reflects on 'no loyalty, no citizenship'. Aid convoy Report: Nine arrested in England by terror police en route to Gaza.   1.   Dogs, and Tails 13:06  |  Arthur Gillman 14/02/09   2.   don`t worry, be happy 14:41  |  Moshe 15/02/09

Read & React U.S., EU indicate they prefer Kadima-Likud unity government Responses: 112 Slow Obama stance on Iran worries Israel Responses: 43 Gideon Levy: Israel mustn't think about bombing Iran Responses: 53 U.S. expected to pressure Israel over settlement construction Responses: 30 IDF probe: Cannot defend destruction of Gaza homes Responses: 18 More Headlines 14:17 Livni hints she'll reject offer to join Netanyahu-led government 14:16 Dichter: Israel must take military action against Gaza arms smuggling 13:16 Slow Obama stance on Iran nukes worries Israel 08:59 GIDEON LEVY / Israel mustn't think about bombing Iran 08:32 U.S. fends off Israeli pressure, decides to help plan 'Durban 2' 13:45 UAE denies Israeli tennis player Shahar Peer visa for tournament 11:45 IDF probe: Cannot defend destruction of Gaza homes 14:43 Exposed: Tel Aviv man has 32 women and 89 children 13:28 Olmert and Netanyahu to meet before agreeing on Shalit deal 08:40 ANALYSIS / Olmert denial of Hamas talks is almost comical 11:45 U.S. expected to pressure Israel on settlement construction 13:10 Carmiel police raid makeshift explosives factory in nearby Arab village 09:48 Palestinians press for international probe of Israel for 'war crimes' 04:18 Study: 50% of national-religious city residents support 'refuseniks' 08:38 Five million incoming tourists a year? Maybe by 2015, but not 2012 12:24 Many kibbutzniks choose Kadima over Labor roots Previous Editions Select Day 13 feb 12 feb 11 feb 10 feb 09 feb 08 feb 06 feb 05 feb 04 feb 03 feb 02 feb 01 feb

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