The shekel drops / The good guy who did bad
Netanyahu and Mofaz will have no choice but to present an unpopular plan including cutbacks because, as things are, the potential budget deficit in 2013 is a big and frightening thing.
One of the brand new unity government's four goals is to put together a responsible budget for 2013. So Prime Minister Benjamin Netanyahu and his new cohort in power, Kadima leader Shaul Mofaz, will have no choice but to present an unpopular plan including cutbacks because, as things are, the potential budget deficit in 2013 is a big and frightening thing.
It's true that the people mainly responsible for the giant hole in the 2013 budget are Finance Minister Yuval Steinitz and Netanyahu. But the Finance Ministry's budgets department shares much of the responsibility.
That department has profoundly changed over the past three years. Once notorious for saying no, it has become the House of Yes. This major change is the child of Udi Nissan, who had been responsible for the state budget from July 2009 to July 2011. He was Israel's first socialism-minded budgets director ever. In short, Nissan had no idea what his real job was.
It's a no-brainer that everybody always wants bigger budgets. That applies to Knesset members, ministers, the Histadrut labor federation, the unions, industry and the various pressure groups. They always have needs and some are genuine ones.
But it's the budgets department's job to stand strong against these pressures. That's why it has to position itself on the far right of the economic map. It's the budget director's job to be the bad guy saying no.
But Nissan was a good guy, in the bad sense of the word. He showed rosy optimism, for instance, when predicting that Israeli economic growth would run at 4% this year. Based on that forecast, he could increase government spending, a move now coming back to bite us.
Nissan wanted to increase spending, while all his predecessors had urged the opposite. At the start of his term at the ministry, he allied with Bank of Israel Governor Stanley Fischer and Prof. Manuel Trajtenberg; together they changed a golden fiscal rule. Instead of the budget growing by a fixed 1.7% annually - the pace of Israeli population growth - they decided that in 2013 the budget would be 2.9% bigger. Moreover, it would continue to grow in the years to come.
Promising to spend more rather than cut back, as Nissan did in 2010, was a huge mistake. That's the sort of thing the budgets czar mustn't say, even if he thinks it's the right thing to do. If that's his attitude, what can we expect the ministers and MKs to do?
Nissan even said that while the public sector used to be considered bloated, it has slimmed down. That shows that he knows absolutely nothing about the public sector and the vast amounts of money it squanders, its endless redundancies and its bloated staffing.
The bottom line is that for the last three years, the treasury's budgets department has been a failure. It failed to block a spending spree. It failed to pursue important reforms. Nothing whatsoever was done about the public sector's lag behind the private sector. There has been no reform of the electricity economy, the ports or the Airports Authority.
Even the Open Skies initiative is stuck fast and the concept of lowering import taxes on foods, spoken about at length, has gone nowhere. A reform to expedite construction to ease the housing crunch has gone nowhere, and a decision has not been made on means-testing as a criterion for housing subsidies.
Nine months ago Nissan was replaced by Gal Hershkovitz as budgets director. It can't be said the change has affected work at the department, but now that Netanyahu is setting up a unity government with Mofaz, it's an opportune time for Hershkovitz to make changes. He must restore the budgets department to glory, to its classic job of safeguarding economic conservatism, jealously protecting the public kitty and advancing reforms. That's his job.