The Likud Central Committee was supposed to decide yesterday whether to allow Prime Minister Ariel Sharon to bring the Labor party into his government. MK Haim Ramon (Labor) would like very much to get into the government. To this end he is even willing to accept the insult of the passing of the 2005 state budget, without the participation of Labor.
In order to fulfill his obligation, he says, "We will raise our reservations concerning the budget, and will insert amendments." But the truth is, that is not really possible considering the already stretched budget.
One of Ramon's examples of a change in the budget's list of priorities is a favorite of politicians, because it theoretically does not cost anything while at the same time channels vast resources to the weak. Could anything be better than that?
Part of the 2005 economic program includes a government decision to reduce employer contributions to the National Insurance Institute. Ramon proposes reducing the deductions by only half, and to transfer the extra millions to the weak, the elderly and to students. That sounds so touching, so nice in the media.
The ulterior motive of the economic policy, however, is to increase employment, which is the right way to break the cycle of poverty and want. The minute that labor costs less, the demand for workers will rise and with it employment levels. It is therefore the right thing to lower employer contributions to the NII, just as it is right to reduce income tax for employees.
A policy of reducing labor costs is not a new invention. Israeli governments began implementing that as early as 1985, and even Labor governments adopted it. Some claim that it failed, and claim 11 percent unemployment as proof. They forget to mention that in 1996 unemployment dropped to 6.6 percent.
Ramon also fails to mention that the treasury is lowering contributions to the NII because some employers were forced to raise pension fund contributions by 1.5 percent, due to the pension reforms. This means that a great many employers - the ones with the biggest payrolls - are not getting a break but are rather offsetting one increased labor expense with a discount in another.
Even Yigal Ben-Shalom, director-general of the NII, opposes reducing employer contributions. It is a three-year program, during which employer contributions will be gradually reduced by 1.5 percent, which represent NIS 3.2 billion. Ben-Shalom says that this reduction will cause "a shortage in resources and a deficit for the NII, and will harm the state's ability to pay stipends to its citizens."
This is where the government's plan is faulty. The treasury should pay the difference to the NII instead of the employers, because otherwise the NII's deficit will grow, and one day there will be nothing with which to make up the shortfall. The treasury is actually deceiving us. It is increasing the future budgetary deficit, just like the government-financed pensions to which no one has been contributing, even though one day there will be nothing with which to pay the pensioners.
On the other hand, we must not forget that all the NII's revenues and expenses are the fruit of political decisions, and there is practically no relationship between the level of NII premiums and the institute's payments to citizens. Such is the case of child allowances, which were raised considerably at the end of 2002 and lowered again in 2003.
NII officials fear that if the treasury's share of the institute's funding goes up, the NII will lose its independence. But that's not true. Even now the treasury finances 40 percent (!) of the NII's budget, with the help of income tax and value added tax revenues. Has the NII's independence been touched?
In order to justify his entry into the government, Ramon went on to say that the most important socio-economic act would be the disengagement, because it would ultimately lead to ending the rule over three million Palestinians and end investing billions in the settlements, and lead to the renewal of true growth. In this he is absolutely right.
All the changes in NII payments, all the cutbacks and reforms, are not worth one iota against the socio-economic good that would come from the disengagement and the renewal of negotiations with the Palestinians - and toward a comprehensive solution that would include the West Bank as well.
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