Yesterday's central bank decision to raise the interest 0.2 percent is a clear warning for four people - the prime minister, the finance minister, Eli Yishai and Yaakov Litzman.
There were many valid reasons for raising the interest rate - higher inflation forecasts; a larger deficit; continuing devaluation; a jump in the money supply; higher interest rates in the financial and capital markets; and a downgrading of Israel's credit rating - this particular interest hike sent mainly a message to the prime minister not to repeat his past mistakes, and make good on his word. No committee of inquiry will be required here, because the outcome of an omission would be clear to all.
All the reasons behind this interest rate hike have one thing in common - a half-baked budget. The treasury is talking of a NIS 13 billion cut, but of the NIS 13 billion, NIS 4 billion is to come from expanding the deficit, which is diametrically opposed to the concept of a budget cut. Another NIS 3 billion will come from new taxes - scarcely a budget cut either. The only thing being cut here is private sector growth and private consumption - not quite what is needed now.
The only way to do it right is to cut government spending. Government portfolios that deal with the same matters should be terminated. The number of ministers must be reduced. Private-member bills must be revoked. Cutting unemployment benefits for anyone who has not reached retirement age is not a bad idea either. But how on earth did they come up with increasing the deficit and imposing more taxes?
It would also be only fair for the treasury and the minister in charge to inform the public of Israel's actual deficit. Will it be 3.8 percent as planned (which itself is outrageous) or much more than that? Last year, some American aid was forwarded later than scheduled, so the deficit hit 4.6 percent. The actual deficit was 4 percent, and the 0.6 percent rightfully belongs to 2002. Thus, the total deficit this year will reach 4.4 percent, to which 2 percent should be added, as practiced in other Western countries, for nominal interest on the domestic debt. The planned deficit is therefore not 3.8 percent as we were told, but an ominous 6.4 percent.
The interest hike is also a warning signal to the ultra-Orthodox parties that for obvious reasons are oblivious to any military emergency or to any economic crisis (since in any case their elite is bred to live as parasites).
Yaakov Litzman of United Torah Judaism, who chairs the Knesset Finance Committee, has already threatened that if child benefits are cut, his party would withdraw from the coalition. Eli Yishai of Shas said he would fight these "harsh decrees" - the code used by Haredi parties for any slash in child benefits.
With the ultra-Orthodox contingent on his tail, Silvan Shalom will in any case have a very hard time getting his plan approved. As long as he's mobilizing for a fight, it may as well be for a plan that will promote growth and employment. That is why this plan should include nothing but a cut in government spending - without any new taxes or any increased deficit.
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