An Important Message From China

Yuval Steinitz has a refined sense of humor. Otherwise, he would not find time to tell us from faraway China - where he has been for nine days already - that "in a year or two, economists will beat their breasts over the poor advice they gave the governments of the United States and Europe, advice that led them into major budget deficits."

Is that so, Mr. Finance Minister? Is it really the "economists" who were at fault, not the politicians who set economic policy? And why cast your gaze as far as the United States and Europe? Better to examine what's happening right here in our own house.

The finance minister recently submitted the 2011 budget, which contains a deficit of 3 percent of gross domestic product and a 2.6 percent rise in spending, compared with the previous standard rate of 1.7 percent. And if that were not enough, Steinitz also said that "the swollen public sector is no longer quite so bloated."

In other words, we have reached the end of our travails and can now stop scrimping and saving. We can now gorge ourselves well past satiety, because we are, after all, nice and trim.

Yet is the public sector really so fit? Maybe the minister ought to look around and see the bloated delegation he brought with him to China. But that, of course, is only small change.

He could also visit one of the superfluous government ministries, or the Defense Ministry, to figure out why streamlining plans have failed to progress. Maybe he could look at the number of unnecessary layers of management at the Education Ministry, or how many pointless local authorities still exist. And what about the bureaucratic encumbrances and excessive salaries at the Israel Airports Authority, Israel Electric Corporation and Port Authority? The list is long.

Steinitz's remarks are dangerous because they give the green light to interest groups, unions and lawmakers to pressure him for handouts. But no less grave is the fact that the head of the Finance Ministry's budget division, Udi Nissan, has thrown his weight behind increasing the budget as well. His misguided, dangerous position violates the budget division's long-standing tradition of fighting for a smaller, sleeker government, so that greater resources will remain for private-sector investment and development - the only real way to achieve sustained economic growth.

No budget director before him ever suggested increasing spending, and rightly so: That is the diametric opposite of his role. Lawmakers and ministers are supposed to demand ever more funds, but the budget director has to play the bad guy, the wicked lender who watches the till and ensures a deficit of 0 percent, not 3 percent. That would rapidly reduce the national debt to at most 50 percent of GDP, from its current, dangerous level of 80 percent. It would save the Israeli economy from the next global or regional crisis.

It seems we are suffering from the Greek disease: We are unwilling to invest today so that tomorrow will be better. Instead of doing what must be done, our government merely panders to the public. Echoing Greece's leaders, our prime minister parrots the line that he needs more money "to improve social services."

And the problem lies not just with our government. The Histadrut labor federation is now demanding higher wages for public-sector workers, as is the norm in Greece. Lawmakers enact populist legislation that increases spending and undermines efforts to shift people from welfare to work, such as by terminating the Wisconsin program.

Steinitz and Prime Minister Benjamin Netanyahu are doing nothing to change a situation in which 65 percent of ultra-Orthodox men do not work - a loss to GDP of NIS 12 billion a year. Nor are they addressing the question of what will happen in 30 years, when 78 percent of elementary school students will be ultra-Orthodox or Arab. Who will work then? What kind of minority will prop up the majority?

We are marching wide-eyed into a crisis that has already been written on the wall. Just lift your eyes and look. But of course it is much easier to present the public with a rose-tinted picture of where we are headed, congratulate ourselves on joining the OECD and continue our lovely visit to China.