Sheetrit Favors NII Means-testing

In an exclusive interview with Haaretz this week, Meir Sheetrit, who is serving as minister in the Finance Ministry, declared that the treasury is planning incentives for investors that would cause Israel to beat Ireland in attracting foreign investment. He denied, however, that the treasury intended to cancel the government's special designated bonds for the pension funds, as part of the pension reform.

"If corporation tax in Ireland is 12.5 percent, here it will be 10 percent," said Sheetrit. "The same goes for receiving dividends."

The minister noted that the world economy had indeed become a global village, and that Israel had to make itself more attractive for foreign investors. "We want them to come here," he continued. "We will offer them an improved version of Ireland. They will invest in the outlying areas with zero bureaucracy. Tax breaks will be given with no bureaucracy."

The former justice minister (2001-2003) and finance minister (1999) is working together with Finance Minister Benjamin Netanyahu in presenting the government's new economic plan, which, to cut public expenditure, calls for many dismissals in the public sector together with comprehensive wage cuts for those remaining in work.

Does the government's deficit target for 2003 remain 3-3.5 percent of GDP, as the Knesset approved in December?

Sheetrit: "People do not understand how bad the situation is. In Israel everyone looks out just for himself. Let them make cuts elsewhere. We met with the mayors. `Yes,' they said, `The situation is very bad. But why are you cutting us back - why not the others?' There is no easy solution. I was in the treasury in 1999. Back then the situation was indescribably better. But in two years, it passed. We are reaching a deficit of around 6-7 percent GDP a year. So is a target of 3.5 percent realistic? It depends on developments. If the Knesset passes the plan, as is, and in time, then there is a chance of reaching the target. If not, then the deficit will be much bigger.

"I have looked at the numbers in the state's first 30 years. We were at war with all the Arab countries, we took in vast numbers of immigrants, we developed infrastructure, and despite it all, we grew on average 5 percent a year. In the past 25 years, the situation was far better, the state grew, GDP grew, we made peace with Egypt and Jordan, but despite it all, we are in a state of contraction. Why is this? In the first 30 years, most people earned their living through labor. Levels of state handouts was low. In the past 25 years, people have stopped working. There has been a sharp increase in those receiving handouts. The numbers have reached the sky."

Because of Shas' entry into politics?

"Because of populism, the electoral system, the surrender of every Israeli government to political group pressures. The state paid money that it didn't have. So two-thirds of the budget is already mortgaged. Expenditure on development, infrastructure, science is continually falling."

That doesn't sound like the socially concerned Sheetrit

"I am all for paying money to the weak. I agree that a society is measured by how it supports the weak. But the real weak. The equal treatment handed out today to all those who apparently are categorized as the weak, discriminates against the truly weak ones. I suggested, for example, cancelation of the Winograd recommendations on students' tuition fees. In my opinion, bringing down students' fees, like helping the veteran population, is discriminatory treatment. Discounts to students cost the state NIS 300 million a year, and every student gets a 17 percent discount. Who goes to university - the poorest? No, the middle classes and higher classes. Why should we help them? For NIS 70 million we could help needy students, giving each one of them a 75 percent discount. We could then also help the needy in kindergartens, schools. Is that not preferable?"

In other words, you are in favor of means-testing National Insurance Institute payments?


Why isn't all this in the economic plan?

"The plan doesn't contain everything. It is an emergency plan. It is intended to stanch the economy bleeding, the deterioration."

So it's not a plan to bring about a turnaround?

"There are elements that will bring growth - first of all, pushing more people into the labor culture, so the plan cuts the tax burden for those who work. There is no state in the world that lowered tax on labor and its economy didn't grow. We will cut tax in three stages so that the maximum marginal tax rate including NII and health tax will in two years' time be 49 percent. Maximum marginal income tax will be 37 percent."