Benjamin Netanyahu's world rests on three pillars: cutting the budget, lowering taxes and implementing reforms. These are the ingredients needed to create rapid economic growth and to get the business sector to create more and more jobs.
On the first and second tests, Netanyahu has failed. He plans to submit a budget to the Knesset that violates a law he himself enacted: the Limitations on Budgetary Expenditure Law. That law allows a maximum budget deficit of 3 percent, but Netanyahu will submit a budget with a deficit of 3.4 percent - or perhaps even 3.6 percent, if he gives in to pressure from parties that demand a quid pro quo for supporting the budget. And with such a large deficit, he will not be able to lower taxes.
The third test is reform. In the last 18 months, Netanyahu has succeeded in changing the labor market by reducing welfare allowances, lowering taxes on labor and starting (albeit too slowly) a professional training program based on the Wisconsin Plan. He has thereby made working more worthwhile than living on welfare.
He also implemented a huge reform of the Histadrut pension funds, which included raising the retirement age to 67 for men. This is a reform that all the European states envy. And this year, finally, even the army is moving from a budgetary pension to a cumulative one, while also lengthening terms of service.
Netanyahu turned the postal s0ervice into a government company, split the Mekorot Water Company into four corporations and introduced competition to Bezeq in the field of landline telephony. There are also some areas that he started dealing with, but has not yet finished, such as the ports. Under a law that will take effect this February, the three existing ports will compete against each other. But en route to this goal, another long, cruel strike can be expected, and it is not yet clear who will win.
There are also areas where Netanyahu failed, such as water. He did not manage to raise water prices, because Ariel Sharon objected. He also did not manage to merge 100 local authorities, because he was deterred by the political power of the Likud Central Committee. Another area where he failed was the defense budget. Despite all the promises, the 2005 defense budget will not be cut.
There are also areas that Netanyahu feared to touch: the Israel Electric Corporation, which is supposed to be split into three companies by March 2005, and the Airports Authority, which also ought to be split to create an independent international airport in Haifa, so that it would no longer be possible to seal off the country. The Israel Lands Administration is also in need of serious reform, so that every citizen would be able to buy outright the land on which his house sits, thereby severing the link with the ILA.
In addition, competition in communications should be encouraged by a transition to personal phone numbers; the Law for the Encouragement of Capital Investment must be changed; the Oil Refineries should be split in two and the Ashdod refinery sold; and Bank Leumi and Israel Discount Bank must be sold.
In the short term, his test will be passage of the proposed reform of the banks and capital markets without any changes. Given the unrestrained budget, reforms are the only hope for rapid growth and lower unemployment in 2005.
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