After postponments and delays, the government is expected today to vote on the state budget for 2007. It is not clear whether the budget will be approved, given the threats uttered by many in the coalition, but even if it does pass with a narrow majority of Kadima and the Pensioners' Party overriding the opposition of Labor and Shas, this will mark only the start of the struggle. There will be many long months of fighting and bloodletting in the Knesset.
In terms of the state budget, 2007 had been expected to be entirely different from other years. It was planned to be a year of low expenditures and a small deficit, of significant increases to spending on welfare, all on the basis of coalition agreements signed in 2006. But even before the war, the first mistake was made. Prime Minister Ehud Olmert pressed; the governor of the Bank of Israel, Stanley Fischer, gave his professional approval; the Budgets Division did not dig in its hind legs in opposition - and thus the ceiling on budget expenditure was lifted. Instead of a 1 percent increase, a new rule was set: a 1.7 percent annual increase.
The second mistake occurred when the budgets director at the Finance Ministry, Kobi Haber, patented a new invention called "I have a source for funds." Instead of making cuts, he used the funds accumulated at various ministries due to "under performance," and used them to pay for 2006 expenses. The ministers saw this and understood that it is possible to exert pressure and get funding - without having to suffer the pains of cuts.
And then the war broke out, bringing about a complete change in priorities. Suddenly there was a need for high expenditures for defense, and the budgetary reserves were gone. Nonetheless, the pressure not to make cuts in the non-defense-related ministries, or impose new taxes, intensified, as did the demands to increase allocations in the budget for the weaker segments of the population, as if there had not been a war. Also in this case, pressures resulted in an easy solution: raise expenditures.
The ceiling on expenditures for 2007 was raised once more, from 1.7 percent to 3.3 percent, and the deficit from 2 percent of the GDP to 2.9 percent. After all, once the dam was busted, it's impossible to stem the flow.
The finance minister, the prime minister and budgets director are now trying to sell us a myth: this is a one-off deviation, they say, one intended solely to fund the war (NIS 2.5 billion) and the reconstruction in the North (NIS 1 billion). However, if that were the case, why is this "one-off deviation" lasting until 2008? Why will the budget also increase by 2.7 percent in 2008, and not by 1.7 percent? Because in Israel "one-offs" are the norm. Once it was the Iraq war, then the intifada, followed by the disengagement, now by the war in the North, and perhaps later with Syria and Iran. This way every year the government spends more than it planned to spend. Three cheers for the "one-off" deviations!
This is not a matter of economics. This is politics. This is about the inability of the prime minister to conduct a responsible and stable policy, and about the lack of courage to institute the correct, long-term policy. Everything is temporary, everything is haphazard and everything is a surrender to pressures.
It is possible that this time there was no choice but to accept a one-time deviation for 2007, but it was necessary to return to normalcy immediately, certainly by 2008. This would have signaled the international community that serious managers are running Israel, which would attract foreign investors and the economy would recover quickly. It is therefore necessary to formulate an entirely different approach to the defense budget. The army will receive NIS 8.2 billion to replenish its stores, pay for the reservists' days away from work and get back to the way it was before the war. But in parallel with granting these large allocations, the Budgets Division and the prime minister should have taken advantage of this opportunity to demand that the army immediately present a streamlining program. This would have been impossible to achieve under normal circumstances.
It is necessary to demand that the defense establishment raise immediately the retirement age of personnel serving in the rear, to limit the number of commands, to deal with the issue of retirement-related perks, cancel delegations to foreign countries, trim the size of the non-combat professional soldiers and save many billions in a fat and cumbersome army. Had this been done, it would not have been necessary to deviate from the budget in 2008, and the economic and social situation would be infinitely better.
Instead, Olmert and Abraham Hirchson surrendered unconditionally to the demands of the army, and the Israel Defense Forces carries on with its demands for another NIS 9.6 billion for bolstering forces and development of projects, and for a permanent rise of NIS 3 billion to the basic defense budget. After all, a taste wets the appetite.
These are enormous sums, and if they are paid, they will result in "one-off" busting of the budgetary ceiling for years to come; it will result in further cuts in welfare allotments (hurting the poor), stymie economic growth, cause a rise in unemployment and a serious socio-economic crisis that will undermine Israel's real strength.
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