A Coward's Budget

The new budget harms the private sector, dulls the incentive to work, inflates employment costs, raises taxes and harms entrepreneurs who wish to invest and create.

There is no doubt that Yuval Steinitz can compete with, and even get the better of, any elephant standing in his way, because no elephant has a thicker skin than Israel's finance minister. After absorbing every insult, taking every blow and becoming a laughingstock among journalists and politicians, Steinitz appeared two days ago at the Knesset and declared, without blushing: "We have an excellent budget." Sure we do.

Steinitz characterizes the fiasco and chaos in formulating the budget and pushing it through the cabinet and Knesset as "a holiday for Israel." As for his capitulation to the Histadrut labor federation, business owners, Shas and the Labor Party, he said we have "the most socially conscientious budget in the last decade." As for the cowardice and the concessions made, he said the budget "will halt unemployment, jump-start the economy and even close [socioeconomic] gaps."

But the "excellent" budget will do the exact opposite. This is a bad, bloated, wasteful budget that channels money to political and populist causes, not economic growth. It's the total antithesis of everything that the "old" Benjamin Netanyahu believed. It's a budget that will not spur growth, fight unemployment or bridge gaps. It's a coward's budget, a budget of individuals who lack backbone and whose only goal is to survive at the expense of Israel's economy and social fabric.

The story of the 2009-2010 budget begins with Netanyahu's pre-election statements. He promised he would lower taxes because this is "the jet fuel for the growth engine." He said he would not increase government spending because this harms the private sector and makes it harder for the economy to move forward. People looked on in amazement as Netanyahu described the long list of reforms he planned to ease the bottleneck in the economy. And what is left of all these promises? Nothing.

The first bad omen was the formation of the largest cabinet in the state's history: thirty ministers and nine deputy ministers whom the public will have to subsidize. An infuriating waste that created the impression that the treasury's basement was flush with cash. Of course, the opposite is true.

The post-election Netanyahu is the polar opposite of the pre-election one. He forgot all his principles, ripped up the rule book that he himself wrote and agreed to pay any price just so he could be prime minister. He signed expensive and irresponsible coalition deals with both Shas and Labor. The Shas agreement directly contravenes his philosophy because it increases child allowances by NIS 1.4 billion. As a result, he lowers people's incentive to work and even encourages poor families to get bigger. In addition, Netanyahu agreed to append to the basic budget the allocations for yeshiva students and religious educational institutions (NIS 600 million), something no previous prime minister had done.

Along the way, Netanyahu and Steinitz gave up on cutting the defense budget and shamefully surrendered to Histadrut chief Ofer Eini. Instead of a NIS 4 billion wage freeze, they received a meager NIS 1.2 billion cut in vacation pay from the Histadrut. Eini has also been given veto power on any economic decision made by the government. Netanyahu, who sees the Histadrut as a Bolshevik and anachronistic institution, has given it powers that even Mapai - a precursor to the Labor Party - refused to give.

The budget talks were handled chaotically. Netanyahu trampled over his finance minister and made a mockery of the treasury's budget department. He canceled "edicts" to win headlines and even brought an outside party - his associate Uri Yogev - into the negotiations. As a result, the budget kept getting fatter to the point where Netanyahu had no choice but to violate his biggest election promise by raising taxes. So instead of jet fuel, we are left with a cruel slamming of the brakes. This is how Netanyahu extinguished the fire that powered the engine of economic growth.

Now there will be less incentive to hire new workers because National Insurance Institute payments by business will rise while the ceiling on NII payments and health tax was raised to 10 times (!) the average income. The middle and upper classes will pay much more tax, which will surely chase away talented entrepreneurs and scare off investors.

Now it will be harder for the poor because value added tax has been raised. In addition, the indirect taxes on cigarettes and gasoline have been increased. Even the price of water has risen thanks to the "drought tax."

Netanyahu and Steinitz have turned off every engine of growth. They raised taxes, increased the public sector's burden and widened the deficit. They even gave up on important reforms in water management, the drainage system, the postal service and health maintenance organizations. The welfare-to-work Wisconsin Plan will not be expanded, and the reforms at the Israel Lands Administration were pared down and rendered useless.

The budget that was approved this week is a bad one. It's a fat, wasteful budget whose message reads more handouts and less work. It's a budget that harms the private sector, dulls the incentive to work, inflates employment costs, raises taxes and harms entrepreneurs who wish to invest and create. We are talking about the most antisocial budget in the last decade.