Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz will present a plan to the cabinet Monday to slash the 2012 budget by about NIS 1 billion and impose a range of new taxes to reduce the deficit.
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The prime minister must have a wry sense of humor. On Tuesday, he said, with no lack of pathos, that in economics “there are no free lunches,” and that if spending increases, there have to be cuts on the other end.
“Anyone who says money can be spent indiscriminately for populist purposes simply puts the state in danger and can lead to bankruptcy,” Netanyahu said.
What courage; what powerful words. We need such a leader of Churchillian stature to define reality so sharply and get to work immediately with blood, sweat and tears.
But wait a minute. Who was it who handed out free lunches? Who spent indiscriminately?
Could it be the same Netanyahu who has been prime minister for more than three years? Hard to believe. After all, he talks as if he had no part in it, as if he were a member of the opposition.
So let’s set things straight. It’s the government of Netanyahu and Steinitz that’s responsible for our bad situation. They’re the ones who, immediately after taking office, increased the budget so they could spend more and hand out more. Every year they’ve increased the budget by NIS 15 billion, but even that wasn’t enough, and they exceeded the budget.
During the first three years they hoped for a miracle. They thought they could have their free lunch and eat it too. Their method was simple: Write postdated checks to be redeemed years into the future, in the hope that those years will never come.
But unfortunately, the postdated checks came due now, of all times, in an election year.
With the help of the postdated checks they doled out salary increases to doctors, prosecutors and social workers, and a little to outsourced employees. They began to implement the expensive recommendations on funding education made by the Trajtenberg committee on socioeconomic change. But they didn’t cut the defense budget, because defense is needed “against the new threats,” Netanyahu said.
They said roads and railroads had to be built, and they had to give to universities, to the police and to the ultra-Orthodox. To the territories, to Migron and to the new university in Ariel. But what about the deficit?
Who was it that spent the money indiscriminately and endangered the state? None other than our prime minister.
Bank of Israel Governor Stanley Fischer had some very harsh things to say Monday about the government’s lack of budgetary credibility. Prof. Haim Ben-Shahar, one of Israel’s leading macroeconomic experts, said “Netanyahu must come to his senses so we don’t end up at an economic Yom Kippur.”
International credit rating agencies are also talking about the urgent need to cut spending and raise taxes, because the deficit this year has breached 4 percent. This is very dangerous and could lead to a financial crisis as in Spain, Greece and Italy.
Only under this massive pressure did Netanyahu set a date: Monday is the day he’ll present the economic plan he should have presented six months ago.
The plan will include immediate across-the-board cuts of about NIS 1 billion in the 2012 budget. There will be taxes on cigarettes, alcohol and other products, and VAT will rise by 1 percent.
A “tax on the rich” of 2 percent will raise marginal income tax to 50 percent on everyone who earns more than NIS 1 million from work or investments. That tax isn’t going to bring in a lot of money, but it’s important to show the people that the wealthy are going to suffer, too.
This is the worst thing that could happen to Netanyahu in an election year, with unrelenting social protest and daily jabs from Kadima leader Shaul Mofaz and Labor Party chief Shelly Yacimovich. But that’s precisely the fate of the man who led a policy of indiscriminate spending, who believed he could outsmart the most ancient economic law of all the one that says there’s no free lunch.