Analysis / Netanyahu Gets an A+ on His Oral Exam

Finance Minister Benjamin Netanyahu proved once again that he is a marketing wizard. He knows how to lecture, persuade, generate sympathy. But when all the numbers are added up, it turns out the budget he presented for 2003 is incomplete

Finance Minister Benjamin Netanyahu proved once again yesterday that he is a marketing wizard. He knows how to lecture, persuade, generate sympathy. He's a master of the turn of the phrase and the knowing gesture. He's like a masterful copywriter able to produce easy-to-remember slogans, simplifying everything so everyone understands, including Mrs. Cohen in Hadera.

And if someone thinks Netanyahu pulled his speech out of his sleeve, they're wrong. He began working on it Friday night, when the lights burned late as he sat with his "inner circle" consulting how to "market' the plan to the public. What to say and what to hide. The speech was well-crafted.

Theoretically, Netanyahu has an orderly economic doctrine, which essentially is to sing the praises of the private productive sector that supports us all, and to denigrate the public sector as fat and wasteful, living off the labor of the productive parts of the population. He gave an excellent example with a story about a lean muscular man who weighs 45 kilograms but is forced to carry a fat man who weighs 55 kilograms. As the fat man gets fatter, the lean man grows thinner until he is forced to slow down and then stop. Even then, he collapses.

The parable is clear. The Israeli public sector takes up 55 percent of the gross domestic product, while the productive sector manufactures only 45 percent. It's a proportion and it's so bad that none exists like it anywhere else in the Western world, and it's been getting worse over the past two years. That's what Netanyahu promises to fix: to cut and make things run more efficiently in the public sector and encourage the private sector - all to bring us the miracle of growth.

Netanyahu listed five elements for reducing the public sector: a significant reduction in wages for senior and mid-level managers, firings, closing redundant units, closing unnecessary state enterprises like the Fiber Institute and the Wine Institute, and unifying local authorities.

He also lists five articles full of promise: advancing the tax reforms, accelerated amortizations for industrialists, encouraging Israelis to work by taxing foreign workers, sweeping privatizations of state-owned corporations in the stock market and massive investment in infrastructure with the help of the private sector.

Netanyahu might have passed the oral exam yesterday with an A+ but now he faces the real test - implementation. Will he be able to stare down the mayors who show up outside his office in a tent declaring they are on a hunger strike? Will he blink when the settlers see their tax breaks have been stripped? Won't he fear for his political future when the Histadrut organizes demonstrations outside his house chanting slogans like "With blood and fire, Bibi we'll fire"? That's the real test.

And when all the numbers and data are added up, it turns out the budget he presented for 2003 is incomplete. The numbers don't work. The deficit is now 6 percent of the GDP, NIS 30 billion. The budget cut is NIS 9-10 billion, meaning the fixed deficit will still be NIS 20 billion, or 4 percent of GDP. So, how can Netanyahu declare he'll finish the year with a deficit of 3-3.5 percent? Or maybe he said that to persuade the Americans to hand over the loan guarantees and the security grant.

The answer is in growth. Netanyahu is estimating - or hoping - that his new steps will renew growth in the economy and thus increase tax revenues, which will reduce the deficit to 3.5 per cent.

But what happens if the terrorism continues or even increases, if the fighting in the territories doesn't come to an end and the war in Iraq has a bad influence on the economy. The investments will continue to decline, private consumption will shrink, and tax revenues won't climb, they'll drop even further.

Then it will turn out the cut wasn't enough and Netanyahu, will have to submit a new budget and another, and another.