Taking Stock / Does the Treasury Have the Moxie?

They just couldn't resist it at the Finance Ministry.

We hear, yet again, that the economic plan taking form over there is the "biggest since the stabilization plan of 1985." Yet again, we hear of "brave structural changes" and "economic revolution."

Show some restraint, treasurymen. It's been all of six months since the former finance minister, Silvan Shalom, said exactly the same thing when presenting the 2003 budget to the government. He also waved the banner of "revolution," prattling about sacrificing sacred cows and restoring "responsible" economic policy.

By now, even the top treasury officials have no choice but to admit that the "revolutionary" 2003 budget submitted some six months ago is from la-la-land, that it is based on preposterous tax estimates, and that it has revolutionized exactly nothing.

It's a budget that if left unfixed, will lift the government deficit to an all-time high of 6-7 percent of GDP, and that's without factoring in the expenses in the event war breaks out.

The treasury is proudly patting itself on the back over two budget cuts - one in the bag, one to come - totaling NIS 20 billion. Beware of that figure, dear reader: Keep in mind that mysteriously enough, the "slashed " budget for 2003 is still higher than was the budget for 2002, in absolute terms.

Unquestionably, the proposals for change in the 2003 budget are far more momentous than anything we've seen in recent years. Several of the items in the plan taking shape are, in fact, the first real effort at real structural reform.

The question is: What will remain of the plan? Will it boil down to higher taxes and the annulment of allowances, or will it retain some of its meat - the steep cut proposed in the wages of high-ranking public sector officials, a reduction in the civil service workforce, a rehabilitation plan for the pension funds, and abolition of the issuing of designated bonds?

The results of the first fight between the Finance Ministry and the Defense Ministry over the budget do not augur well. The Defense Ministry's ploy, to set itself a budget that exceeded its approved budget by NIS 6 billion, worked.

Instead of the treasury discussing how many billions more to cut from the defense budget on top of the NIS 6 billion slashed in the previous round, the discussion last week centered on how many billions to cut from the new, higher base that the Defense Ministry set itself when it decided to completely ignore the budget approved by the government and the Knesset.

If Netanyahu wants to win public and political support for his economic program, he must focus on slashing the salaries of the public sector fat cats. The plan taking form, to cut 20 percent from the wages of the absolute top earners, 10-15 percent from high earners, and nothing from low earners would be the first real-McCoy revolutionary move that the treasury could claim in recent years. It would be not only warranted, but also effective. Without doing this, the government cannot legitimize any other cuts or decrees.

Yet, herein lies danger. Savaging the salaries of the uppermost earners will slam like a hurricane into the most powerful labor unions in the country - the ones closest to the heart of Histadrut labor federation chairman Amir Peretz.

Cuts aimed at lower echelons could provide him with an excuse to come out swinging hard for the high earners.

Peretz has already proved his penchant for protecting the fat cats as ardently as he protects the weak. In 2000, he battled against the income tax reform, even though it was based on taxing capital gains. His excuse was that it took a bite out of the advanced training funds, which primarily benefit the upper percentiles.

Does the treasury really have the moxie to take on the strongest unions and the nation's highest earners? Can Netanyahu gain the support of the people for his economic program? Will he get the backing of the prime minister and the Knesset?

We will find out soon enough. But one thing we can't say at this stage is whether this economic program, assuming it is approved by the powers that be, can actually rescue the economy from recession. It is clear that something has to be done to avert financial crisis, but it isn't clear that the treasury's plan has what it takes to restore economic growth.