New Finance Min. / Not Even an Hour of Grace

Prime Minister Ehud Olmert and finance minister designate Roni Bar-On were once rivals in the Likud's Jerusalem branch. But Bar-On has since become the politician closest to Olmert, defending the premier on every occasion. When the Winograd Committee published its interim report on the Second Lebanon War, for instance, he repelled all attacks against his boss.

Bar-On first came to the Israeli public's notice when he was appointed attorney general in 1997, only to resign a day later amid charges that he had been chosen to quash charges against then Shas leader Aryeh Deri in exchange for Shas' support for a withdrawal from Hebron. In 2003, he was elected to the Knesset on the Likud slate, and he is currently interior minister - a difficult job given the endless crises in the local authorities. Thus far, he has dissolved 10 local governments that failed to abide by recovery programs, but some 20 towns are still not paying their workers.

Bar-On is an economic liberal, who supports the free market and competition. But he lacks both experience and the requisite macroeconomic knowledge. On the other hand, he is a quick study, backs the people under him, is not afraid to appoint strong people to key positions, and has the personal and political power essential for a finance minister, who must muster majorities in the cabinet and Knesset to pass the budget and implement reforms.

Bar-On's arrival finds the treasury at a historic nadir: The budget has been thrown wide open and reforms are not moving. Thus he does not have even an hour of grace.

His first urgent task is to secure cabinet approval for a NIS 1.3 billion cut in the 2007 budget this coming Sunday. Immediately afterward, he will have to get a much larger cut in the 2008 budget through the cabinet. That will not be easy. Everyone will be opposed - all the ministers and all the MKs. Labor and Shas will certainly vote against it. Then, he will have to get both cuts through the Knesset, which will be every bit as hard, given a dysfunctional coalition in which every MK is already campaigning for the next primary, and is therefore courting popularity. Budget cuts are very unpopular.

The army is demanding a massive budget increase, and so is the education system. Olmert also has an expensive "social agenda," which includes a negative income tax, middle-class tax cuts, mandatory pensions and raising the usage value of company cars. In addition, the Histadrut is seeking a big raise for all public-sector workers, the wage crisis in the local authorities is continuing, and there is a long list of reforms planned by the treasury that will require facing off with powerful unions and other interest groups.

Treasury officials believe that Bar-On is up to the task and will not allow the budget to be busted. They believe they will manage to "convert" him, as they have other finance ministers. But there are no guarantees of that. Bar-On is a tough nut to crack, and he could buck the consensus and opt for increased government spending in order to assuage opposition from ministers and MKs, give his patron Olmert a little political quiet and ensure the government's survival.

Will Bar-On have enough time to deal with all these difficult problems? That depends on how long Olmert survives. Will he remain in office even after the Winograd Committee publishes its final report? Will he be indicted in the Bank Leumi affair? Will Labor stay in the government?

Given the fluidity of the political situation, Bar-On's appointment as finance minister might be strictly short-term - and that in itself is bad news for the economy.