Taking Stock / Nightmare at the treasury
The director-general of the Finance Ministry, Joseph Bachar, hastened to clarify that even if his boss quits, the treasury will preserve its present economic policies.
The cabinet secretary, Yisrael Maimon, hastened to announce that the timeline for the various economic legislative efforts on the agenda has not changed.
But a glance at the brochures the treasury handed out last week regarding the budget and conversations with top treasury personnel present a different picture. Even before Benjamin Netanyahu sent Israel's political and economic circles into a flap, cracks were opening. Questions were arising about the viability of the 2005 economic policy.
The treasury's handling of next year's budget is becoming uncomfortably reminiscent of how the ministry under Silvan Shalom handled the 2002 budget.
l Growth: The treasury is predicting 3.8 percent growth in 2005. Is that realistic, or not? Hard to say, but it's certainly not conservative. Is it optimistic? Sure is. And is it responsible? Probably not.
A treasury insider admitted to us this week that the forecast is on the high side, and he'd have preferred to base the budget on 3 percent at most. Private-sector economists are also less optimistic than Netanyahu. Global growth spiked in 2004, but it is expected to slow significantly next year, and the results will impact directly on Israel as an exporter.
Reducing the growth estimate to 3 percent, or even 3.5 percent, of GDP would create a scary gap of billions in the state's tax revenue forecast. Tax commissioner Eitan Rub knows that well: in private discussions, he's said that he feels comfortable with the work plans of the tax authority but feels less comfortable with the growth estimate.
Treasury sources say that despite the negative indicators accruing in recent months, the ministry will meet its deficit target for 2004, but apparently will achieve it by deferring costs, while its income remains highly worrisome.
l Wage cuts: One of the biggest mistakes that Netanyahu and his wages director Yuval Rachlevsky made in 2003 was to compromise with the Histadrut on wage cuts in the civil service.
Instead of insisting on steep, permanent wage cuts for the biggest earners, the treasury caved in. It reduced wages across the board, by a little bit, and for only two years.
Now it's time to pay the piper. In July 2005, public-sector wages are set to start climbing again. To meet the 2005 deficit target, the treasury has to persuade the Histadrut to restore only half the amount cut from salaries, or NIS 2 billion.
l Canceling tax exemptions: The 2005 budget assumes that the government will manage to abolish all sorts of tax exemptions. One is reducing the tax-free ceiling on contributions to advanced training funds (keren hishtalmut) from NIS 14,000 to NIS 7,000.
Lowering that ceiling is expected to produce NIS 800 million for the treasury. The problem is the Histadrut has traditionally blocked any attempt to touch the sacred training funds, which are usually the baby of the richest earners. Will the treasury push it through this time? Probably not.
Politicians, Knesset members, ministers - they all smell blood in the water, that of the treasury men. Netanyahu has abandoned them battered and bleeding mere moments before the biggest battle of all. Without a finance minister they are weakened, vulnerable, and their chance of passing the 2005 budget unchanged is not good.
Worst of all is that the current 2005 budget proposal already has Silvanism: it is overly optimistic, poor on reserves and rich on risks.
Asked last week how he means to cope with the situation, a top treasury personality suggested an extreme scenario. It is entirely possible, given the current composition of the cabinet and Knesset, that the budget won't pass at all, he suggested. Then under law, come 2005 the government has to trudge along spending 1/12 of the 2004 budget each month. And that, he finished, is the wet dream of the accountant-general and the bureaucratic echelon at the treasury.
When it's the treasury's own people wishing for that scenario, it does not augur well.