Who Will Steer Israel Away From Its Own Fiscal Cliff?

Treasury officials are writing two drafts of the 2013 budget, the original one prepared for the prime minister last summer and a second proposal to be based on the government's makeup, especially if the Labor Party joins the new coalition.

The new year is likely to bring painful spending cuts that will be hard to implement - alongside a long list of tax hikes. Meanwhile, 2013 has started without an approved budget, which will constrain spending for the time being: the state can only spenda twelfth of the 2012 budget each month until it has a budget for the year in place.

Meanwhile, ahead of the January 22 election, Bank of Israel Governor Stanley Fischer has been stealing the show, calling for tax hikes in line with spending. In media interviews, Fischer has spoken out on controversial fiscal issues. In the meantime, Finance Minister Yuval Steinitz has been largely absent from the media spotlight as the Knesset campaign heats up.

In any case, various views are emerging from the treasury, at least before the election.

"We have reached the situation where we don't need to raise taxes anymore but need to keep the status quo," said Deputy Finance Minister Yitzhak Cohen of Shas yesterday. "Raising taxes isn't an option since it harms growth. From experience, raising taxes may help psychologically but it doesn't help the economy."

Two budgets

Treasury officials are writing two drafts of the 2013 budget, the original one prepared for the prime minister last summer and a second proposal to be based on the government's makeup, especially if the Labor Party joins the new coalition. But the differences between the two are not great.

Steinitz's disappearance started in the weeks before the Likud primary. After that he came out with a number of surprising statements, such as how he secretly transferred money to the settlements from the state budget. In the end, he was placed 24th on the Likud-Beiteinu ticket, a relatively low slot, albeit one with a good chance of making it into the Knesset.

And Steinitz achieved this small accomplishment only with the help of Prime Minister Benjamin Netanyahu. Steinitz has been very busy with the election in recent weeks - so busy that he wasn't heard at all in key matters such as the nurses' strike.

As of January 1, Steinitz is even less important, as the state is operating without an approved budget for 2013, and spending is simply based on the prorated monthly basis of the 2012 budget. In practice, by law treasury officials are managing the budget until after the election, when the new government and Knesset pass a new budget.

Steinitz is among those most responsible for Israel's version of the fiscal cliff facing the treasury after the election. The combination of lower tax revenue and higher spending will be the new government and finance minister's main challenge.

Even though Netanyahu's chief economic advisers have let him know their opinion of Steinitz's tenure, it's still convenient for the prime minister to keep Steinitz on. He has never, ever said no to Netanyahu - and never will.

But the economy needs a finance minister who understands economics and knows how to manage and navigate; someone who can be creative when necessary. The economy needs long-term planning and vision; someone who can function on an equal footing with Fischer and the head of the National Economic Council, Eugene Kandel, Netanyahu's two chief economic advisers.

Names being mentioned in Likud to become finance minister are Education Minister Gideon Sa'ar and Environmental Protection Minister Gilad Erdan. It's not clear if either would achieve better results than Steinitz, and the question of their loyalty to Netanyahu is still unanswered.

Yair Shamir is another name being bandied about, but he's from Yisrael Beiteinu, and prime ministers have always made sure the finance minister comes from their party. In any case, if Yisrael Beiteinu chief Avigdor Lieberman can't receive a senior ministerial position because of his legal problems, Shamir will be next in line - and a possible finance minister.

Does Steinitz plan to move on?

Meanwhile, could be Finance Minister Yuval Steinitz preparing to take a different portfolio in the next governmentafter this month's election? Evidently he felt a need to mark his achievements so far. On Tuesday the Finance Ministry released a presentation entitled "The Israeli economy in international comparison" - it included the economy's achievements from 2009 to 2012, when Steinitz was finance minister.

The economy grew more than that of any other developed nation during that period: 14.7%. This compares with 10.7% for Australia, 4.8% for Canada, 3.2% for the United States, 2.7% for Germany and 0.3% for France, the treasury said.

Many other developed nations saw their gross domestic products shrink: Japan's shrank 0.5%, Britain's 1.6% and Italy's 5.5%. Meanwhile, for the euro zone as a whole, gross domestic product contracted 1.5%. Per capita figures also showed the Israel growing the fastest, and the numbers for debt to GDP and unemployment were also impressive.

But the presentation left out many comparative figures, all of which cast the economy in a less favorable light. Numbers on imports and exports, inequality, the trade balance, purchasing power and housing prices were left out.

The data were collected and prepared by Dr. Michael Sarel, the head of the ministry's economics division and State Revenue Administration.

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