The main objective of the 2013-14 budget is to avert an economic crisis. If anyone hasn't yet gotten the hint from countries like Greece or Spain, now is definitely not the time to fall into a crisis. The global capital markets aren't being generous with countries suspected of being financially unstable, and suspicion itself is enough to crush any country’s bonds. And Israel is certainly a suspect.
The Bank of Israel has already provided a chastening analysis under which Israeli government bond yields are three to six times higher than for countries with similar debt – and this is with Israel in good economic shape. It’s best not to check what interest the markets will demand if, heaven forbid, we start showing financial weakness.
Warding off the risk of financial crisis is the budget's main objective – and it's being achieved. With the new budget, just as in the tough crises of 1985 and 2002-03, Israelis are proving they know how to mobilize in times of trouble, accepting whatever punishment it takes as long as we reduce the debt and stabilize the budget.
The current budget requires Israel to cut spending and increase taxes to the tune of an enormous NIS 32 billion. Such a big adjustment takes its toll on everyone and everything, like child allowances, the defense sector, public sector pay, income tax, corporate tax and value-added tax. Painful decrees come from every direction, but the pain is much milder than the agony every Israeli will experience if the country finds itself in a financial/budgetary crisis.
The main advantage is that a deep crisis lets us take drastic, vital steps. In1985 and 2002-03, Israel turned the budget crisis into a historic turning point. The 1985 stabilization program spawned the modern Israeli economy, and the 2002-03 crisis triggered long-term processes such as addressing the pension crisis, encouraging ultra-Orthodox and Arabs to work, and changing the labor market. Can the 2013-14 budget match the bar set by the two previous crises?
Unlike those two previous cases, this isn't a historic budget. It brings no tidings for a better future - no laying the foundations for a new and better Israel. The budget doesn't include key proposals such as changing the retirement age, reforming the public sector, improving the lot of the Arab community, dealing with Israel's severe productivity problems, or reforming the massive government monopolies.
But remember, the government and rookie Finance Minister Yair Lapid didn't have enough time to deal with history. The fact that the election was held during a budget crisis didn't give the new government time to prepare an impressive budget. The true test for the current government, and particularly for the finance minister, will come a year from now when preparations for the 2015 budget get under way.
In any case, there’s one historic piece of good news in the 2013-14 budget: the change in the status quo with the ultra-Orthodox, a change no less historic than the attempt to draft Haredim into the Israel Defense Forces. This involves cuts to many of the economic benefits that have let Haredim survive outside the working world, like child benefits, day care discounts without any work obligation, and low-cost housing without any work obligation. And yeshiva funding ha been cut by nearly half.
If that's not enough, the budget also includes revolutionary steps in basic Haredi education. Core subjects – English, Hebrew and math – have been imposed on ultra-Orthodox elementary schools as a condition for receiving government funding, along with testing and more supervision. Assistance to Haredi schools from local authorities has been canceled. And although the two largest ultra-Orthodox school systems have been spared funding cuts, they could still be disbanded upon the establishment of a state-Haredi education system.
In the skeptical and cynical State of Israel, where it appeared that the Haredim would forever extort benefits from the state, the 2013-14 budget should be considered miraculous. This is probably a once-in-a-generation opportunity that the government has exploited to the fullest.
If the government stays determined, we could be on our way to a historic change in the relationship between Israel's secular and Haredi communities. It could be the beginning of economic, if not social, integration of the Haredim. That would be plenty.
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