Our Booby-trapped Budget Package

Recent moves proves that the prime minister is only interested in keeping his job and will pay whatever it takes to keep it. What Tzipi Livni refused to give, Netanyahu is giving away in buckets.

Today it's official: Israel is in a recession. The economy is shrinking, unemployment is rising, exports are retreating, investments are plummeting, private consumption is falling, and inflation is raising its ugly head.

What we need in such a bad situation is a courageous economic plan, a budget of sweat and tears, a prime minister with a backbone and a finance minister who's an expert. But we have the exact opposite: a bad budget with no tidings of reforms or growth. We have a weak, inconsistent prime minister and a zombie for a finance minister.

We saw the first worrying signs when Benjamin Netanyahu put together his cabinet, the largest in Israeli history, at a time when cutbacks were necessary. That was a clear signal to everyone: come and take, there's money, the bosses have gone insane.

And so it turned out that all the coalition agreements were lucrative. It was an end-of-season sale: Child allowances were raised by NIS 1.4 billion, old-age stipends were increased by NIS 900 million, unemployment benefits were extended, management fees for pension funds were reduced, and another NIS 100 million was given to nonprofit organizations. And there were many other deals more appropriate to times of growth and prosperity. All of this proved that the prime minister is only interested in keeping his job and will pay whatever it takes to keep it. What Tzipi Livni refused to give, Netanyahu is giving away in buckets.

Then came the time for negotiations over the budget, a process characterized by anarchy where the plans and numbers changed every few hours according to the pressure applied. But none of this is very important. The result is what's frightening.

Netanyahu's most famous slogan was about the transition from welfare to work. The 2009 budget does exactly the opposite. There are increases in taxes and stipends. There is no negative income tax or expansion of the welfare-to-work program. In other words: more stipends, less work.

Netanyahu's second rallying point was his war against "Histadrutistan," the reign of the unions and bureaucrats. But the Histadrut labor federation greatly increased its control over the economy and the "fat man," the public sector as Netanyahu calls it, got even fatter.

The Finance Ministry negotiated with Histadrut chairman Ofer Eini to reach a package deal including a wage freeze for a year and a half, costing the budget NIS 4 billion. But Netanyahu replaced the treasury's representatives with Uri Yogev, and the dam burst. Instead of a wage freeze, we got something ridiculous called "forgoing half of vacation pay." And in return the rewards were fantastic: a cancellation of privatization plans, cutbacks and dozens of reforms in communications, water, sewage, transportation, tourism, education, energy, defense and local authorities. Because that is what Eini the kingmaker wanted.

Despite the pronouncements, the Israel Defense Forces received a budget increase. The business sector also celebrated. They received NIS 2.5 billion from Netanyahu above and beyond his initial plans, because Manufacturers Association chief Shraga Brosh is part of the most expensive economic roundtable in the world.

And when there are no reforms, no privatizations and taxes rise, there is no growth and economic competitiveness drops. That's the strangest package deal: The state gives and Eini and Brosh take. Instead of a package deal we have a booby-trapped package.

Netanyahu's third standard was also ripped to shreds: restraining spending. Since 1985 there has never been a case such as now when the cabinet decided on a 1.7 percent spending increase and the prime minister surrendered and increased expenditures by three percent. The deficit is also unprecedented, six percent in 2009 and 5.5 percent in 2010. Truly dangerous.

This means that within a year or two, the state must raise the enormous sum of NIS 80 billion, which will increase public debt and inevitably lead to lower credit ratings for Israel and higher interest rates.

This will be a deathblow to industry, growth and employment. The people will probably realize this when their mortgage rates rise, but by then it will be too late.

The prime minister and finance minister have only one chance to make revolutionary changes - at the beginning of their term when a crisis is blowing. And they have missed their chance.

Their program is leading us to an even deeper recession and unemployment, and possibly even to a loss of economic stability. This is Netanyahu and Finance Minister Yuval Steinitz's historic blunder.