Buying Their Way to Power

European economists believe budget deficit should not exceed 3 percent of gross domestic product. Israel would receive a warning if it were a member of the EU, since we, too, have a budget deficit that exceeds 3 percent of GDP.

After five successive years of rapid economic growth, 2009 ended with zero growth. This is not the best piece of news out there, but relative to the state of the global economy, it is also not the worst.

What is discomfiting, however, is the state of the budget. The European Union, which has 27 member states, issued a warning to eight of those countries - Italy, the Czech Republic, Austria, Germany, The Netherlands, Portugal, Slovenia and Slovakia - due to their high deficits. These countries were told to get their acts together in light of the lessons learned from the global economic meltdown. European economists believe the budget deficit should not exceed 3 percent of gross domestic product.

We, too, would receive such a warning if we were members of the EU, since we, too, have a budget deficit that exceeds 3 percent of GDP.

This year, the global economy can be divided into two: Europe versus the United States. In Europe, Germany and France instituted a responsible policy, in stark contrast to the hundreds of billions of dollars that U.S. President Barack Obama poured into the economy, a move that is pushing the United States into an unprecedented (since World War II) deficit of 12 percent of GDP. It is not by chance that the U.S. dollar is weakening against the euro.

Fortunately for us, we did not duplicate Obama's error. At the height of the public panic, the tycoons, banks, provident fund managers and even the Bank of Israel demanded that the Finance Ministry pour in tens of billions of shekels to "rescue" the capital market. But standing in their way was a tough finance minister, Roni Bar-On, who protected the public coffers.

But now, those who are driven by their own private interests are once again pressuring the government to increase state expenditures. Last month, the cabinet voted to spend an additional NIS 2 billion, yet the budget cuts that are supposed to finance the expenditure have yet to win Knesset approval. The government gave in to the Education Ministry over an NIS 280 million cut, and the chairman of the Knesset Finance Committee, Moshe Gafni (United Torah Judaism), is opposed to reducing funding for yeshivas. The result: No cuts.

Moreover, Finance Minister Yuval Steinitz instructed Accountant General Shuki Oren to immediately transfer NIS 40 million to the national service program, "even though there is no budgetary coverage for such an expenditure." This is an unprecedented move that makes a mockery of the budget, as well as of the rules of proper governance. If this is how the finance minister conducts his affairs, what will the backbenchers in the Knesset and the special interests say?

Indeed, Shas is already demanding an advance on the promised increase in child allowances, and MKs have submitted a long list of "socially conscious" bills. Histadrut labor federation chairman Ofer Eini and Manufacturers Association President Shraga Brosh are demanding that the treasury increase funding to help exporters and establish an additional fund to assist marketing. They also want the treasury to cancel the increase in the value-added tax and to lower payroll deductions for the National Insurance Institute. For this is the atmosphere the prime and finance ministers have created: There's plenty of money, come and get it!

The latest demands come against the backdrop of encouraging data showing that the deficit is likely to hit 4.5 to 5 percent by the end of the year, and not the planned 6 percent. Rather than ending the year with a deficit of NIS 43 billion, we will finish it with a deficit of NIS 33 billion. That is how we emerged with a "surplus" on which everyone has now set their sights.

But this is not a real surplus. It is simply a lower deficit, which in any event is still too high. Take a look at the European model. A lower deficit means that the accountant general can subtract NIS 10 billion from the sum he needs to raise on the capital market. Then there will be more sources of funding for the private sector and long-term interest rates will fall. This is the best possible shot in the arm for the economy, growth and the war on unemployment.

Moreover, if we borrow less money, our public debt will be smaller, so Israel's risk level will be lower and its credit rating will be higher.

Now, as the economy is beginning to emerge from the crisis, is the appropriate time to cut NIS 3-4 billion from the budget, rather than augmenting spending. Such a cut would provide more breathing room for the private sector, allow for tax cuts and expedite economic growth.

Yet it appears that in the current political climate, one in which Prime MinisterBenjamin Netanyahu is ready to do anything in order to preserve his political alliances, there is not much chance of this happening. Netanyahu is ready to sacrifice everything he believes in to keep Eli Yishai and Ehud Barak happy. He is ready to spend NIS 180 million annually on unnecessary ministerial posts - ministers without portfolio and deputy ministers without utility - just to buy some political calm. He is even willing to turn a blind eye to the Defense Ministry's scandalous trip to the Paris Air Show just so Barak will not get angry.

Netanyahu and Steinitz have bought their way to power. And they have done so on our dime.