Bar-On Plans to Loose N Purse Strings

Finance minister-designate Roni Bar-On says that budgetary discipline is very important, but nevertheless he seems poised to increase government spending by 3.3 percent next year rather than the currently planned 1.7 percent, based on his comments in an interview with Haaretz a few weeks ago.

"Given Israel's complex reality, and when the economy is demonstrating such impressive strength, we need to continue the stable and responsible economic policy that the Finance Ministry has conducted for the past few years, with the backing of the government and the Bank of Israel," Bar-On said. "To ensure that the economic continues to grow, budgetary discipline is extremely important, as is the government's credibility. Therefore, we need to maintain the size of the budget and the size of the deficit, as the government has promised both the public and the American administration."

But in that same conversation, he termed the current policy that limits the budget's growth to 1.7 percent a year "pure bluff." In reality, he said, government expenditure in 2007 rose 3.3 percent - thanks to "one-time expenditures."

This is a trick developed by the Finance Ministry's budget division that allows the government to tell the public, and Washington, that it is limiting the budgetary growth to 1.7 percent while really increasing expenditures by 3.3 percent. For instance, the government increased spending by 1.6 percent - in addition to the regular 1.7 percent increase - due to last summer's war in Lebanon, and the subsequent need to rebuild the north. But because these are one-time expenditures, they are not considered part of the regular budget.

The result is that instead of growing by NIS 4 billion, government spending will rise by NIS 7.9 billion this year. In other words, the government has an additional NIS 3.9 billion to play with. And Bar-On apparently intends to repeat this trick in 2008.

"The fact is that it [this system] works, with regard to both the Americans and the financial markets," he said. "The fact is that the financial markets have remained stable, including both interest rates and the shekel-dollar exchange rate. In other words, [the markets] have seen that we kept our promises on the budget."

The implication of these statements is that he does not plan to cut NIS 9 billion from the 2008 budget, as the treasury is currently proposing, but much less, which will reduce the opposition of ministers and MKs and thereby allow him to pass the 2008 budget - and thereby keeping Ehud Olmert's government in power.

Responding to criticism of his lack of macroeconomic experience, Bar-On responded that he has headed large organizations like the Sports Betting Council and made major changes there.

Will he implement major reforms and take on the powerful unions?

"I have no fear of dealing with big, difficult issues," Bar-On responded, adding that in his former position as interior minister, "I implemented many reforms and opened boxes that had been sealed for years, including reforms in the Planning Administration and the Population Administration."

As one example, he cited the passage of the Municipalities Law, "which lay in a drawer and rotted for eight years until I arrived."

"Similarly, I have ousted 10 mayors who failed to abide by recovery programs in the last year and a half, even though it is well-known that the mayors' political lobby is the strongest lobby there is," he said.

Bar-On said that Interior Ministry Director General Ram Belinkov "was an inseparable part of [my] success" at that ministry, and he would like to see Belinkov come with him to the treasury as head of the powerful budgets division. Koby Haber, the current division head, is expected to retire in another few weeks, and "that is a natural place for Belinkov," Bar-On said.