The economy beat Netanyahu
Netanyahu must continue lowering the cost of labor. This could be accomplished by lowering workers' income tax or by lowering the amount employers pay to the National Insurance Institute. There should also be negative income tax for those with low income who are currently not paying income tax, to ease their transition from a life of unemployment to a life of productive employment.
In a few days we will celebrate Israel's 56th Independence Day, but Israel is very far from being truly independent. When addressing a diplomatic plan for disengagement, all the efforts are directed toward receiving the seal of approval from U.S. President George Bush. As for military might, the United States provides Israel with F-16s the best multi-mission fighter jet in the world. And when Israel needs an economic rescue plan, the American taxpayer puts his hand in his pocket and pulls out billions of dollars in loan guarantees.
That is not independence; it is American satellitism. Even the data on the standard of living are not encouraging. The per capita product, which represents the standard of living, declined for the third year in a row, and today stands at $16,300. That is the same as it was in 1996, which means that the three years of the intifada have set the standard of living back eight years. This figure is even worse when compared to the rest of the world, since the Western countries have not stood still all this time. The standard of living there has risen steadily, so the gap between them and Israel has grown. Even Greece, with a per capita product of $17,000 and Spain ($20,000) have surpassed Israel.
No wonder then that Finance Minister Benjamin Netanyahu now views the main goal of his job as encouraging economic growth. "Only when the economy stabilizes at a growth rate of 4-5 percent, will we start reducing the deficit and paying debts," said Netanyahu last week, adding that if he has extra revenues from taxes, he will continue to lower taxes, since that is the fastest and most correct way to encourage growth.
The problem, however, is not only the low growth rate, but also the increase in the inequality in the economy - the growing gap between the rich and the poor. This will not be solved by wave of a magic wand. It involves the unemployment problem, which is not only not shrinking, but it is even growing. While the average unemployment rate in 2003 was 10.7 percent of the work force, that figure has now grown to 11 percent, or 292,000 people, each of whom represents a whole world.
The Bank of Israel yesterday raised its growth forecast for 2004 to 4.3 percent, but Netanyahu wants growth of 5 percent, because only then the demand for workers will grow, unemployment will drop and that will be the proper solution to the inequality, because the moment that an unemployed person begins to work, his self-respect returns and the gap between him and the rich will narrow.
For this reason, Netanyahu must continue lowering the cost of labor. This could be accomplished by lowering workers' income tax or by lowering the amount employers pay to the National Insurance Institute. There should also be negative income tax for those with low income who are currently not paying income tax, to ease their transition from a life of unemployment to a life of productive employment. The number of foreign workers should likewise be reduced to open up jobs for Israelis. It is good to invest in professional training, in transportation infrastructure, to connect the center with outlying areas, and the education system should also be made more efficient because education and knowledge are the basis for fair wages.
Netanyahu complained this week that the shekel is too strong a currency, that it is supported by overly high interest rates, and that the governor of the central bank should continue lowering the interest rate. True, the bank's governor should continue lowering interest rates, but Netanyahu is also responsible for them. The finance minister is the one who sets long-term interest rates, and these rates affect the desire to invest. Thus, the more the budget deficit is lowered, meaning the more government expenditure is cut, the less additional capital will be required, and interest rates will drop.
Netanyahu likewise has a direct influence on the dollar/shekel exchange rate due to the massive use of loan guarantees to finance the deficit. The more dollars he brings in, the lower the exchange rate.
The stock exchange is the surprise. Since the end of February 2003, when Netanyahu took office at the treasury, share prices have almost doubled. This time the bourse accurately predicted the improving growth rate and the increase in exports, thanks to the recovery of the world high-tech sector. The bourse is not even worried about the reprisals that Hamas has promised Israel. The capital market also believes in Sharon's disengagement plan and sees in it the beginning of a political horizon, which is a necessary prerequisite for the return of optimism and growth.
Here is the spot to disclose Netanyahu's deep secret - why he switched from being a sworn opponent of the disengagement plan and became a supporter. Netanyahu understood that in order to obtain high stable growth, he had to give the people hope for a diplomatic arrangement that would reduce terror attacks. This is something that the disengagement plan could provide. That was the main reason for the change in his position, his colossal desire to prove successful and bring about a reduction in the unemployment figures made him change his political beliefs.