Analysis / The Right Stuff

The opposition's reactions were pitiful. Ophir Pines said that Netanyahu is trying to improve his image. Shalom Simhon said it wouldn't help those who are standing in line to receive food handouts.

It's true that the opposition's job is to oppose the government. But sometimes it's best to keep quiet, because Netanyahu's move is both correct and well-timed. While tax cuts won't directly help jobless Israelis standing in line for Passover food packages, it will help hundreds of thousands of workers who earn between NIS 4,000-10,000 per month. Every shekel counts for these workers. They will now receive more cash in their pockets, and the government will pocket several billion less. And this is the whole story in a nutshell: more for the citizens, less for the public sector.

And if we and Netanyahu have a bit of luck, the jobless will also benefit, because these cuts will eventually lead to a higher rate of growth and the creation of new jobs.

A decisive meeting was held at the treasury on Friday. The head of the Budgets Division, Uri Yogev, was in favor of reducing corporate taxes to encourage investments. The accountant general, Yaron Zelekha, advocated trimming income tax to spur private consumption. The director of VAT and Customs, and soon-to-be-head of Income Tax, Eitan Rub, wanted to lower purchase taxes on building materials, such as iron and floor products, to boost the construction industry. He also suggested waiting another month to ensure that there is indeed a sufficient upswing in tax revenues.

But Netanyahu wanted to strike while the iron was hot. He wanted to maximize momentum at the critical moment. Therefore, he acted on all fronts (investment, labor, consumption and construction) and linked the move with a revision of the Law for Encouraging Capital Investments. He wanted to give the economy a push just as it is starting to move forward, because - just like pushing a car - moving from a stagnant position to one of motion takes up most of the energy.

Of course, he was not oblivious to how this might affect his popularity. And there is nothing like good headlines on Passover eve to make the public - and a public servant - happy. At the same time, Netanyahu made it clear to his fellow ministers that he will not consider raising their budgets, because every shekel that enters the till will already be earmarked for tax reductions. And there should be no mistake here: every citizen knows how to spend the additional shekel he receives better and more efficiently than any government minister - even the prime minister. Therefore, it is clear that the public will benefit from every additional shekel it receives, leaving less in the hands of the government.

Netanyahu paid little heed to Bank of Israel Governor David Klein's advice about reducing the public debt before cutting taxes. Klein is worried about a financial crisis like the one that occured in June 2002, when we were unable to raise a single dollar in the world.

But when one considers today what would be best to do with the additional shekels from tax revenues, the correct decision is to lower taxes, because this is the strongest growth engine and is much better than any proposal for "government projects to encourage growth." And when the economy grows, the public debt, at any rate, will decrease in proportion to GDP, and we'll enjoy the best of both worlds.

Netanyahu must continuously provide fuel to keep the engine of growth running and to reach a high level of long-term growth. Therefore, he needs to continue a policy of trimming the size of the public sector, and this, in turn, will enable tax cuts to continue. He'll also need to continue the process of reforms: to open the ports to competition, to sell Israel Discount Bank, and to take provident and mutual funds out of the banks' hands. Together with this, we must not forget that we are not dealing with a quiet European country. This is the Israeli economy, which will always remain dependent on the world economy and the level of terror and war at home.