As PM Warns of Economic Gloom, Country's Leaders to Get Pay Raises

'We are going to experience a very difficult period. We are not a separate continent and not an invulnerable island,' said Prime Minister Benjamin Netanyahu.

Israel is facing a difficult economic time, Prime Minister Benjamin Netanyahu warned in a speech to the Knesset plenum on Wednesday evening. But that hasn't stopped the government from giving itself a raise: Salaries of senior officials are set to increase 2.5% to 4% in January.

"We are going to experience a very difficult period. We are not a separate continent and not an invulnerable island. The global economic shock will certainly affect us," said Prime Minister Benjamin Netanyahu during a Knesset debate.

Benjamin Netanyahu - Emil Salman - 24112011
Emil Salman

"Our economy is a significant achievement amid the world's dire straits. The [Israeli] economy is expanding, there is money for social needs, and we have avoided the high unemployment facing many Western nations," he said.

Netanyahu promised to continue to push the recommendations of the Trajtenberg committee on socioeconomic change through the cabinet and Knesset.

Meanwhile, senior government officials are scheduled to receive raises at the beginning of 2012. President Shimon Peres, Knesset members and judges will be making 4% more starting next year.

Prime Minister Benjamin Netanyahu, ministers, State Comptroller Micha Lindenstrauss, ministry director generals and Bank of Israel Governor Stanley Fischer will receive cost-of-living raises of "only" 2.5%.

These top officials' salaries are updated once a year, in January. The wages of the president, MKs and judges are tied to the average wage over the previous year. This figure is expected to increase by about 4% in 2011.

The prime minister, ministers, director generals and others have their wages tied to the cost-of-living index, which is expected to increase about 2.5% in 2011.

This means MKs' monthly gross salaries will increase by NIS 1,254, to NIS 36,016. Netanyahu will get an extra NIS 1,000, and will gross NIS 46,140 a month. Peres will get a NIS 1,900 raise, to NIS 52,809. Supreme Court President Dorit Beinisch will get an extra NIS 2,138 and earn NIS 60,183.

Ministers will have to make do with an increase of only NIS 927, to NIS 38,147.

Until 2001, the wages of all these officials were linked to the average wage, but the figure started increasing sharply as the high-tech industry took off in the early 2000s. In response, Finance Minister Avraham Shohat changed the wage structure in order to link pay to the cost of living instead. But the Knesset decided to implement the new model for only some senior officials.

The risks currently facing Israel's economy are myriad. Some evidence of how this difficult period is affecting Israel can be seen in the wave of debt restructuring agreements being struck by major companies.

These debt arrangements are likely to shake the capital markets over the next few months.

The list of major companies that cannot pay their debts includes Yitzhak Tshuva's Delek Real Estate, the Gaon and Zebeda families' ACE Auto Depot and perhaps the Ofer family's Zim shipping company, which would be facing its second debt restructuring in two years. Bonds of Ilan Ben-Dov's Tao Tsuot have hit astronomical yields of 476%.

These are just some of the best-known companies in dire financial straits. It's not just overleveraged companies that are in trouble; many other firms could hit difficulties in the face of a global slump.

In his Knesset speech, Netanyahu addressed housing prices, saying that the government had increased housing starts by 50% and that housing prices had fallen for the first time in years.

Regarding the ongoing labor sanctions by hospital doctors and residents, he said they would find a way to reach an agreement that would benefit all sides.

"We have approved some of the [Trajtenberg] recommendations in the cabinet, for example on taxation, and we will hold further meetings. The decisions affect almost every field in citizens' lives: education, welfare, prices of goods and services. They will lower the cost of living for hundreds of thousands of families. This will significantly improve their standard of living. This is one of the biggest social revolutions the [Knesset] has seen," said Netanyahu.