Such a huge deficit will lead to a decline in Israel's credit rating, and therefore an increase in long-term interest rates - which spells a death sentence for investment and growth.
In August 2008, a meeting was held in the office of Prime Minister Ehud Olmert to finalize the 2009 state budget. The prime minister was arrogant as usual, and when Finance Ministry Budget Director Ram Belinkov explained the dangers to the economy that are anticipated as the result of the sub-prime and dollar crisis, Olmert replied, "You always whine and then you end up with a surplus."
But September 15 arrived, Lehman Brothers went bankrupt and the world entered a profound crisis and a threatening and frightening recession. Even Belinkov (like all of us) did not estimate that the crisis would be so harsh. For the first time in five years, 2008 ended with a larger deficit that was anticipated in the original planning. And that's nothing compared to what we can expect in 2009, a dangerous and critical year.
There was negative growth in the last quarter of 2008. In November and December there was a sharp decline in tax collection, so that the deficit in 2009 will not be one percent, as planned, but at least five percent, because of the drop in income.
These are deficit levels the likes of which we have not seen since the crisis of the second intifada at the start of the millennium, and we still remember the increase in unemployment and inflation and the escape of the dollar, which soared towards the five shekel mark.
According to present Finance Ministry planning, the government will be forced to raise NIS 35 billion in 2009 - a huge sum - in order to compensate for the deficit. This sum will dry out the market. All the savings will go to the government, and the business sector, which in any case is suffering from credit suffocation, will be suffocated even further.
The significance of such a huge deficit is a sharp increase in the public debt, which will lead to a decline in Israel's credit rating, and therefore an increase in long-term interest rates - which spells a death sentence for investment and growth.
Such a large deficit will cause the government to lose its credibility. Nobody will any longer believe that it will carry on with the plan to lower taxes. The great fear will be that inflation will rear its head and the governor of the Bank of Israel will be forced to raise the interest rates. The result will be a loss of confidence in the shekel, a rush to the dollar, devaluations and once again inflation. The recession will deepen and we will go back to the difficult crisis year of 2002.
But this frightening scenario makes no impression at all on our politicians. Nor on the businessmen. They are exhibiting a worrisome lack of responsibility in an atmosphere of "catch as much as you can."
Everyone is coming with complaints to the treasury: Why did it delay? Why didn't it distribute? Why didn't it spend? Why did it give so little?
The war is not over yet, but the industrialists, the contractors, the hoteliers and the independent businessmen are already demanding billions. As though the treasury were full.
And they are all being outdone by the team of Ofer Eini, the chair of the Histadrut labor federation, and Shraga Brosh, the president of the Manufacturers' Association of Israel, who has become an expert at robbing the public coffers. Their beautiful friendship was not born out of love, but out of mutual interests: Why fight one another if together they can run rings around the weak government and extract a few more billions from it?
At a conference that took place this week at the Osem plant in Sderot, they competed with one another to see who could do a better job of insulting the finance minister. Eini wants the compensation to workers in Ashdod and Ashkelon to be equal to that in Sderot. He is taking care of everyone. He is one of the good guys. Fortunately, there is no need to compensate the workers in Tel Aviv.
Brosh brought groundless statistics about huge losses in the south. He wants industry to go over to a four-day work week while the state pays for the fifth day. He wants the employers to send people on vacation while the government pays their salaries. He wants a government fund of NIS 1 billion for industry and he wants the state to buy corporate bonds in order to raise their price. After all, his friends are losing money.
The entire business sector wants to exploit the situation in which the prime minister is living on borrowed time, in order to receive compensation from the state - not only for the war in the south, but for the worldwide slump as well. Osem CEO Dan Propper said at the conference that, "we must not abandon the workers," but he actually meant the capitalists. Defense Minister Ehud Barak, in his cynical way, praised the cooperation between Brosh and Eini. Perhaps that will help him pick up a few more votes at the polls.
Recently, Barak demanded that the budget be increased by six whole percentage points (as compared to a planned 1.7 percent), thus breaking Labor MK Avishai Braverman's record. They don't care that when we increase expenditures the huge deficit will increase further, and the crisis will definitely ensue.
After all, the government has a few other tasks: Financing the war in the south, the emergency plan for expanding credit and the plan for encouraging employment, research and development, and infrastructure. Therefore the additional funds that the industrialists are requesting will increase the deficit from 5 percent to 8 percent, and the crash will be inevitable.
It is hard to envy Finance Minister Roni Bar-On these days. The Labor Party has issued a declaration to the effect that, "the blood of those who were fired is on the head of the finance minister." Brosh and Eini worked to bring him down in the Kadima primaries, and every snot-nosed kid or chair of some half-baked organization is calling for his ouster, attacking and insulting him.
And it is showing on him. He has lost his joie de vivre. He looks quite shattered. Only Eini and Brosh are continuing to rejoice.