Likud chairman Benjamin Netanyahu yesterday revealed his economic manifesto, in which he is vowing to force the banks to unclench their fists and also, promises to lower income tax.
"The Bank of Israel's interest rate cuts, no matter how dramatic they are, don't help the economy if the banks don't translate them into lower interest rates on credit," Netanyahu said at a press conference he called yesterday to reveal his economic platform. "We will encourage the banking system - pressure it, if you will - to lend more."
Netanyahu didn't explain exactly how he would press the banks. All he said is that at first he'd try to reason with the bankers.
Also present at the meeting with the press were Dan Meridor, Silvan Shalom and Yaakov Neeman, all former finance ministers. If elected prime minister, Netanyahu said, he'd keep the finance portfolio in Likud hands, and vowed to direct economic policy himself.
"I can't envision the prime minister not being deeply involved in shaping economic policy, while we stand on the brink of a global economic crisis unprecedented in scope," Netanyahu said. "Just as the prime minister shapes defense policy, he should be involved in shaping economic policy."
He said the Likud would also retain the education portfolio, and if possible under the terms of the coalition that emerges, the public security portfolio as well.
The Likud economic platform is built on five main planks. The first is action to relieve the credit squeeze, both at the banks and in the capital markets (where it's all but impossible for companies to sell corporate bonds these days).
Second is a call for structural reforms, most notably in the Israel Lands Administration, Netanyahu said. He added that problems in education and internal security weren't due to budget crunches but to bad management.
The third pillar of Netanyahu's policy is investment in transport infrastructure. He calls for the laying of rail tracks to Eilat as well as to the north, and construction of a "real trans-Israel highway from Eilat to Kiryat Shmona." That, together with the land reform, should be a magnet to investors, he said. "We have a small country that's a traffic jam from Gedera to Hadera. Land needs to be developed in the periphery as well."
The fourth point is increasing support for R&D, provided to industry through the chief scientist's office at the Ministry of Industry and Trade, and also - supporting research at universities, Netanyahu said.
The last and most important point is tax cuts. This was the only subject on which Netanyahu turned specific. He means to lower the maximal rate of income tax from 45% to 35%, and to slash corporate tax from 24% to 18%, he said. (Incidentally, Netanyahu got the present rates wrong. Maximal income tax is 46%, a level that is supposed to drop to 44% next year. Corporate tax is presently 26%, and is supposed to drop to 25% in 2010.)
Roughly speaking, Netanyahu says he means to reduce the tax burden by 20%.
Most of the tax cuts would aim at low earners, among whom every shekel saved on tax is routed to consumption, which the economy needs in order to rebound. The lowest earners of all, who don't make enough to pay income tax at all, would be in line for higher negative income tax, he said.
One of the costs of the current crisis is growing unemployment, Netanyahu said. He means to tackle the danger to jobs through stimulating economic growth. Only support for corporate profitability can assure jobs, he explained.
The weak point of Netanyahu's manifesto is its cost. Where is the money for reforms and tax cuts to come from? Here Netanyahu remained opaque, and wouldn't discuss the deficit that the government would run under his command. All he'd say is that his program would require Israel to run a "temporary deficit."
Likud governments have a history of budgetary responsibility, he said. More spending in one area would be offset by cuts in another. Would he cut the defense budget to pay for his plans? Netanyahu didn't answer.
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