Analysis / A Virtual Budget - With a Slight Nod to the Voter

The 2006 budget is really a virtual budget. It doesn't have much chance of being implemented, because the Labor Party is unlikely to allow Prime Minister Ariel Sharon to rule until October 2006. Nor is Shinui, which resigned from the government, likely to return for several months just to support the budget. And we must not forget that the Likud rebels, aided by Finance Minister Benjamin Netanyahu, will do anything to curtail Sharon's tenure. Thus we are looking at a very long time in 2006 without a budget, perhaps half a year or more - and that's bad for the economy and for us all.

The 2006 budget, publicly presented yesterday by Netanyahu, was constructed with a slight nod to the voter. Though not the election economics of yore, Netanyahu keeps insisting it is "a decree-free budget." He used to be proud of his decrees. Still, the budget contains several decrees, though not so harsh as before.

Were it not an election year, Netanyahu would present a smaller deficit. In a country where the public debt amounts to some 100 percent of the GDP, you cannot make do with chipping away at the budget. You need a budget with a much smaller deficit in order to reduce the threatening debt.

Fiscal theory also holds that as an economy begins growing, and local demand increases, government expenditure should be heavily slashed to leave as many resources as possible to the private sector. Therefore, we should be seeing in 2006 a deficit of 1 to 2 percent of the GDP, instead of 3 percent. Netanyahu would have had to fight for much deeper defense cuts and also streamlined the "fat" public sector.

The budget items introduced by Sharon, constituting "a change in priorities," would not have passed so easily were it not an election year. But with the voter on the horizon, the treasury agreed to substantial sums for "important causes" that somehow weren't that important before: combating violence, increasing the number of classrooms, encouraging immigration, developing the Negev and Jerusalem, allocating for minorities, promoting tourism and investing in roads.

Sharon will surely brandish these additions about. He won't bother mentioning that the money will come, shekel for shekel, from corresponding cutbacks in welfare, education, health and social affairs. You can't make something out of nothing.

Throughout the night between Monday and Tuesday, Budgets Director Kobi Haber spent hours on the phone with Prime Minister's Office director general Ilan Cohen, who tried increasing the sum earmarked for "changing the priorities." NIS 1.1 billion was ultimately agreed upon.

Were this not an election year, the budgets department and Netanyahu would have delivered several tough and important reforms - dismantling the Israel Airports Authority and Israel Lands Authority to open up painfully narrow bottlenecks that stymie growth.

Still, many wanted to see a larger deficit in the 2006 budget. For instance, Labor Party ministers. For instance, Ilan Cohen, who wanted the disengagement removed from the deficit, thereby returning to a deficit totaling 3.4 percent of the budget.

So it's true the deficit isn't small enough, but at least it hasn't grown - and even that's something in an election year.