Analysis / Finance Minister Bites Off a Lot

From time immemorial, every finance minister faced one or two crucial tests at the beginning of his tenure in office, and according to these tests, everyone determines his attitude toward the man.

From time immemorial, every finance minister faced one or two crucial tests at the beginning of his tenure in office, and according to these tests, everyone determines his attitude toward the man. Is he a strong finance minister, principled, capable of standing up to pressure and demands - or is he a weak figure, constantly seeking public applause, unable to handle pressure and lacking in political backing?

During his first test, Benjamin Netanyahu failed. Ariel Sharon did not back him up. Netanyahu demanded that the Defense Ministry stay within the boundaries of the budget the Knesset approved in December 2002, but the IDF managed to get more from the prime minister. The Defense Ministry argued that it is unable to suffer any cuts. During the first quarter of 2003, it operated as if there was no government nor Knesset. Lo and behold, the army managed to get nearly all it wished. Instead of three billion shekels, only one billion will be cut from its budget, postponing the other cuts for two years - this is like writing a check on ice.

As a result of this "discount," the other ministries will have to suffer greater cuts: education, culture, health, welfare will lose another NIS 2 billion, in addition to the planned cuts of NIS 10 billion.

Netanyahu's second test is still ahead, and its result will determine his future as finance minister and that of the economy over the next two years. It is all about the arrangements that control labor relations in the economy.

Netanyahu intends to cut public sector salaries, lay off thousands, alter labor agreements, and institute cuts in pension benefits. Every single one of these issues is a declaration of total war against the Histadrut labor federation and other significant labor unions. This means cutting the salaries of senior officials by 10 to 20 percent, and we know their ranks include union officials, and the most powerful unions in the economy, like those of the Israel Electric Corporation, Bezeq, the Oil Refineries and the Bank of Israel. In addition, it will involve lay offs in all parts of public service, not on a mass scale, but certainly the closing of departments and specific units. There is also the intention to carry out a revolution in labor agreements, canceling tenure in government and local municipal posts and allowing the transfer of officials from one post to another.

As if all this were not enough, the minister intends to reduce pension benefits by raising the retirement age by two years, increasing the individual's contribution to pension funds, and transferring the running of the Histadrut-run pension funds - suffering a NIS 60 billion deficit - to a more efficient government management.

The Histadrut will not be able to allow these changes to go unchallenged, and we are in for a difficult, long general strike, affecting all parts of the economy, peaking with our having to walk in streets piled with rubbish and seeing closed ports and airports.

The question is whether Netanyahu and Meir Sheetrit know exactly where they are going. Have they run the necessary simulation for the difficult situation that will ensue? Are they willing to confront the Histadrut, the major unions, the opposition in the Knesset and a significant portion of the public?

The very worst thing is to come out with a major bang and then to quickly fold after the first strike is declared.

In addition to these two major tests, the finance minister will present a long list of important reforms, like breaking the Electric Corporation into two or three companies with private investors as partners; turning the refineries into two competing companies; introducing competition to Bezeq's landline business; uniting about 100 local authorities; transfering the management of some government hospitals, psychiatric services and well-baby clinics to health maintenance organizations; and we have not forgotten the privatization of El Al and Bank Leumi.

Netanyahu likes these reforms. If he could get them done like a magic trick, he would have done it today. He seriously believes that the public sector in Israel is too big and incapable of business management. The problem is operative. He already promised these wonderful reforms when he was prime minister. But when he entered the battlefield, the struggle with the interests of the capital holders and of the unions, he withdrew and hardly carried out a reform.

The situation is even tougher now and he is personally involved in a struggle to convince the public of the righteousness of his ways. He will require absolute backing from the prime minister, a majority in the Knesset and strength against the Histadrut and those who will be demonstrating outside his residence. Can he take the heat?