Subscribe to Print Edition | Fri., May 09, 2008 Iyyar 4, 5768 | | Israel Time: 04:20 (EST+7) web haaretz.com   Back to Homepage Rosner's Domain Diplomacy Defense Jewish World Opinion National Print Edition Advertising Books Arts & Leisure Business Real Estate Easy Start Travel Week's End Anglo File

Budgetary discipline By Ami Ginsburg Tags: budget The achievements of the Israeli economy in 2003-2007 signify a genuine turning point. After nearly 30 years of slow growth, interspersed with brief spurts, beginning with the Yom Kippur War of 1973, in recent years the economy has returned to rapid growth of 5 percent per annum. Many reasons combined to produce this change: the global surge, a worldwide fall in interest rates, rapid growth in the developing countries and the natural swing of the pendulum following the rough recessionary period at the beginning of the decade. But along with the external and cyclical factors for the new growth we must also point out the decisive contribution of the uncompromising budgetary policy and cuts in government expenditures. This policy was launched during the second term of prime minister Ariel Sharon, under the leadership of then finance minister Benjamin Netanyahu, and is continuing. Advertisement Under Netanyahu's leadership, and with the assent of the Histadrut labor federation, the government in 2003 succeeded for the first time in reducing public sector salaries. At the same time, it was able to implement pension reform and raise the retirement age, thereby reducing its long-term commitments. These measures restored the business sector's trust in the government's ability to meet its undertaking to stabilize the economy. Netanyahu likened his plan to a diet undertaken by a "fat man" (government expenses), to enable the "thin man" (the business sector) to carry it more easily. The budget cuts continued in the years that followed. Surprisingly, this time pressures against budgetary restraint failed. The tight budgetary discipline was reflected in the rapid decline of the government deficit: In 2003 the deficit was still 7 percent of GDP, but by 2007 it had fallen to just 0.8 percent. The decline in the deficit stemmed from the larger than expected increase in tax revenues (due to the economic growth) and from the fact that the government did not stray from its original budget framework. The surplus tax payments were channeled into reducing the public debt, which at the end of 2007 had fallen to 81 percent of the GDP - its lowest rate since the 1960s. The low debt and budgetary discipline helped reduce the weight of the government in Israel's overall GDP and freed resources for the business sector. Diminishing the government debt helped stabilize the economy and scored points for Israel with foreign investors. The budgetary discipline made it possible for the government to take occasional measures that encouraged growth, notably tax cuts. Thus, the past few years have seen reductions in income tax, company tax and VAT. In addition, the government needed to raise less capital, a situation which helped lower interest rates and freed resources for the business sector. As a result, the business sector was able to hire more workers, invest more and in the end to enjoy rapid, healthy growth. One effect of this policy is the strengthening of the Israeli shekel against foreign currencies (especially the U.S. dollar). Between June 2002 and April 2008 the shekel gained 33 percent, falling from NIS 5 to the dollar to NIS 3.5 to the dollar. No similar strengthening of the shekel against the dollar had been recorded previously in Israel's history. The budgetary discipline also has a price. The Bank of Israel Report notes that part of the decline in the deficit stems from substandard performance of civilian investments. The abstention from necessary civilian investments in education, health and transportation is hurting Israel's more disadvantaged populations, at least in the short term. Overall, though, the budgetary discipline of recent years is an important, essential accomplishment, which lays a good foundation for the hope that the cycle of positive economic growth will continue in the years ahead as well. Bookmark to del.icio.us   Stronger than its ills The 60th anniversary celebrations are accompanied by a bad taste. Rise in racism Israeli Arabs say institutionalized racism has increased.

Read & React Bradley Burston: Sixty years of Nakba, sixty years of nothing Responses: 322 PA official: No Israeli partner in light of latest Olmert probe Responses: 197 Haaretz Editorial: Israel stronger than its ills; Mideast peace is still possible Responses: 138 Rosner's Domain: Obama and the Jews: is 61% enough? Responses: 98 Peres: I didn't imagine Qassams would be fired from Gaza after pullout Responses: 230 More Headlines 01:50 Olmert suspected of accepting illicit funds from U.S. businessman 23:55 ANALYSIS / The PM seems crushed in face of allegations 02:50 BACKGROUND / Olmert's financier, a fundraiser who prefers to avoid the limelight 02:46 Following PM probe revelations, MKs call for his resignation 03:21 IDF to probe paratrooper's accident during Independence Day air show 03:16 Tensions rise in Beirut in clash over Hezbollah's telecom network 22:14 FM Livni: Israel ready to make sacrifices for peace 17:34 British PM: Israel`s creation one of the 20th century`s `greatest achievements` 23:09 Hamas: Gaza-Egypt border to open for three days 18:31 Thousands take to streets and parks as Israel celebrates 60 years of statehood 18:06 Olmert said ready to bring about peace agreement with Syria 22:49 Five police officers and two Arab MKs hurt as clashes erupt at Naqba Day protest 01:06 Two Israeli tourists thought missing in Burma cyclone found unharmed Previous Editions Select Day 08 may 07 may 06 may 05 may 04 may 02 may 01 may 30 apr 29 apr 28 apr 27 apr 25 apr

Special Offers Advertisement Dead Sea Products Buy Dead Sea mineral skin care and beauty products. Coupon code Haaretz for 10% off. Together Celebrating Israel's 60th The Jewish Agency and You - together making history Pardes Institute Summer Sessions http://www.pardes.org.il/ FAREWELL ISRAEL New Film The Coming War for Islamic Revival - View Movie Trailer The interest rates haven't changed But your profits will! Learn Hebrew online with Israel's best teachers Sign up for a trial lesson today Free the Palestinians from: Corrupt Kleptocracy, Tyrannical Theocracy, Abysmal Anarchy Fattal Hotel Chain Perfectly located hotels on best resorts of Israel. ISRAEL BONDS Build Israel Israel bonds - a multi-purpose way to celebrate Israel's 60th Eldan Rent a Car Israel's leading car rental company offers you a 20% discount on all online reservations Junkyard Junk a car - get free towing nationwide and a tax-deductible receipt

Home | TV | Print Edition | Diplomacy | Opinion | Arts & Leisure | Sports | Jewish World | Underground | Site rules |

Real Estate in Israel

Haaretz.com, the online edition of Haaretz Newspaper in Israel, offers real-time breaking news, opinions and analysis from Israel and the Middle East. Haaretz.com provides extensive and in-depth coverage of Israel, the Jewish World and the Middle East, including defense, diplomacy, the Arab-Israeli conflict, the peace process, Israeli politics, Jerusalem affairs, international relations, Iran, Iraq, Syria, Lebanon, the Palestinian Authority, the West Bank and the Gaza Strip, the Israeli business world and Jewish life in Israel and the Diaspora.

© Copyright  Haaretz. All rights reserved