Our New, Uneconomic Netanyahu

Yes, there is a grave global crisis, but even more grave is the way the finance minister and prime minister have handled it.

Unemployment is climbing, economic growth is backtracking, the budget hole is without precedent and the Bank of Israel is warning of a rise in public debt. All this is one week's harvest of a bloated, irresponsible government. Yuval Steinitz found a simple explanation: "the grave global crisis, the likes of which have not been predicted in generations." Yes, there is a grave global crisis, but even more grave is the way the finance minister and prime minister have handled it.

Instead of alleviating the crisis, they are exacerbating it. Instead of minimizing it, they are expanding it. They are doing the exact opposite of what is required because, hey, the economy can go to hell but staying in power is sacred. It's also very pleasant.

This thesis can be easily proved if we compare the steps taken in 2003 to those currently planned.

In 2002, the economy was in a serious crisis. Growth was negative, unemployment reached 10.3 percent, the budget deficit was gargantuan, interest rates were climbing, the stock market was at an all-time low, inflation reached 6.5 percent and the state could not raise even one more dollar from abroad. The head of the Bank of Israel at the time, David Klein, said one large bank was in danger of bankruptcy. He was referring to Discount Bank.

During those now-distant days, Histadrut labor federation chairman Amir Peretz proposed solving the crisis by imposing new taxes and compulsory loans on the public, because only a large budget could save the situation. Meretz's Haim Oron suggested similar measures, though he wanted also to cancel privatization efforts and reforms.

But prime minister Ariel Sharon wanted to set a trap for his rival, Benjamin Netanyahu, and appointed him finance minister. Netanyahu wanted the far cozier job of foreign minister. After thinking it over for two days, Netanyahu decided he was up to the task.

In April 2003, Netanyahu submitted an economic plan that was the opposite of what Oron and Peretz had proposed. He cut NIS 3.5 billion from the budget and moved to lower the deficit to just 1 percent of gross domestic product. He instituted sharp cuts in child allowances, unemployment benefits and single-parent stipends. Public pressure from the likes of single mother Vicki Knafo could not stop him. He quickly cut income taxes and enacted a series of important reforms.

The response to his policy was swift. Public confidence was restored and the malls were once again bustling. Investors began pouring money into projects. Within a few months, the economy changed direction. Annual growth rapidly reached 5 percent, and instead of a rise in unemployment (as predicted by Oron and Peretz), there was a sharp drop. Half a million people left the world of unemployment and joined the job market, including Arabs and Haredim who until then had never even dreamed of looking for work. If this isn't the best remedy for social ills, what is? Tax revenues soared, the budget deficit fell, as did the debt-to-GDP ratio, which reached an all-time low of 78.2 percent in 2008. Israel became a global success story, and the flow of foreign investment reached unprecedented levels.

But now we have a "social" Netanyahu and a docile finance minister who walks in his shadow. This time our budget is the exact opposite of the 2003 plan. So it's easy to predict that the results will also be contrary.

Instead of cutting the budget and lowering taxes, Steinitz and Netanyahu are increasing public spending. Thus, they were also forced to raise taxes. They increased National Insurance Institute fees paid by businesses, raised the NII and health insurance ceiling payments for salaried employees and increased value added tax. As a result, there is no "jet fuel" for the engine of growth. Rather, there is a wasteful stranglehold.

At the start of his second term, Netanyahu had already signed an embarrassing coalition agreement with Shas that raised child allowances (an incentive not to work), against his basic principles. Then came the scandalous agreement with the Labor Party that once again called for an increase in spending. It inflated the cabinet to 30 ministers and seven deputy ministers - a world record that laid bare the irresponsibility. Where is the shred of integrity thought to be possessed by Dan Meridor and Benny Begin?

Then Netanyahu scornfully canceled the evil treasury's "edicts" and gave in on his intention to cut the defense budget, which would have freed up NIS 3 billion. He brought in Uri Yogev to handle the negotiations with Histadrut chief Ofer Eini and Manufactures Association head Shraga Brosh, reaching a shameful outcome: the "package deal" that is nothing more than a total capitulation to the Histadrut and employers.

As such, it's no wonder the Central Bureau of Statistics is reporting a rise in unemployment and negative growth. It's now wonder the treasury bemoans the large deficit in June and the Bank of Israel predicts that the debt-to-GDP ratio will worsen.

Here it becomes clear that Netanyahu is a big hero whenever he has big backing. He was able to carry out his revolution of 2003 only because he had the rock-solid support of Sharon, who withstood all the pressure and did not fold. But now Netanyahu has Bibi, and herein lies the entire problem.