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The number of press releases from the Finance Ministry has started to rise in the last few days. But the problem is not the number but the content. Note for instance the following announcement: "Finance Minister Benjamin Netanyahu initiated a meeting with representatives of immigrants from the former Soviet Union with a view to formulating the 2006 budget.

"At the meeting in which MKs Uri Stern and Uli Edelstein took part along with representatives of the different organizations active in the Russian segment, a series of problems troubling immigrants from the former Soviet Union were raised.

"The finance minister promised the immigrants' representatives to look into the claims raised and to try and find a solution for them in the 2006 budget, which will be brought before the government for approval next week."

There's no mistaking it - a whiff of elections is in the air, and Netanyahu believes that economic reforms alone will not buy him the public's affections. He wants more.

While Netanyahu wants to cozy up to certain segments of the population - he's actually much more troubled by the increasing competition in the economic sphere from Prime Minister Ariel Sharon.

The unofficial declaration of war came last Sunday, when Sharon surprised a cabinet meeting with the news that Intel had informed him of its decision to build a plant in Israel. The Finance Ministry seethed: the treasury had negotiated with Intel over the scale of its grant and now the prime minister had agreed to enlarge the grant and was reaping the image windfall.

Discount on the deficit

The competition between Netanyahu and Sharon over who will look like the great public benefactor is the biggest threat hanging over the 2006 state budget. A first warning sign was sent Sunday by Bank of Israel governor Stanley Fischer.

When Fischer took office he told journalists he was undecided about how much the Bank of Israel needed to be concerned with and review topics under the control of the Finance Ministry - such as, for instance, the budget deficit.

The indecision seems to have been short-lived: in the half yearly inflation report submitted to the government this week, the Bank of Israel staff express anxiety that the government will not meet its deficit targets for next year due to insufficient budget allocation for the cost of disengagement.

The possibility that the Finance Ministry will deviate from the deficit for 2006 is particularly disappointing - since the deficit target for next year is unambitious: Netanyahu already gave himself a discount a year and a half ago and decided it was "OK to deviate" over the disengagement. Even his clerks, who should have been up in arms, joined him in this permissive stance, and the result is that next year's deficit goal is 3 percent of GDP, as against 3.4 percent last year.

In case the numbers don't mean much to you - we need only mention that the Budget Deficit Reduction Law was first passed into legislation over 12 years ago. According to the terms of the original law, the State of Israel was supposed to eliminate its deficit over a decade ago. To this day no government has managed to approach zero. The one time it happened was by accident - when vast one-time-only windfalls took the state treasuries by surprise in the era of the high-tech and Internet bubble.

Nervous bond and currency markets

One reason the finance minister has difficulty adopting more ambitious deficit targets, fitting to the positioning Netanyahu arranged for himself as the man who'll put the public sector on a diet, is the compromise the treasury struck with the Histadrut labor federation two years ago.

Instead of deciding on efficiency goals and long-term pay reductions for senior public sector figures - Netanyahu and his staff concluded a short-term agreement with the Histadrut: In July, public sector pay went back up by between 4 percent and 17 percent, with the lower percentage rises going to those with low pay and the high percentage rises going to those with high pay, and no connection whatsoever to efficiency or productivity.

Fortunately for the finance minister, the economy has the cast-iron safety net of U.S. government guarantees and Israel has the benefit of the massive cash flows directed at developing markets.

If it were not for those guarantees and the tail wind, Netanyahu would be starting to feel the nervousness of the bond and currency markets - and maybe they would impose more discipline on him and the prime minister than those two have demonstrated in the last two months every time they stood side by side before the public.