'If We Raise Taxes, Investors Will Flee'

Even sitting in his Singapore hotel room, Finance Minister Abraham Hirchson has not changed at all; he is still quiet, laid back and calm. At least that is the way he looks on the outside.

"My job is not shaky. I don't think that Amir Peretz is going to replace me," said Hirchson, who was wearing a T-shirt and sitting on the sofa in his room. The comment came in response to reports from Israel that Peretz intends on changing ministries, and wants to be finance minister.

What about earlier, similar reports during recent months?

"Not one of them came from the Prime Minster's Office."

Treasury officials say that Peretz would be making a mistake by becoming finance minster. He would be putting himself into a trap, as he has promised to increase spending, but there is no money available. The bank is empty, and if Peretz wants to raise spending anyway, he will cause an economic crisis and be branded a failure. That is why they feel that Peretz is no real threat.

Hirchson, 65, sees himself as Benjamin Netanyahu's successor in economic policy, only with greater compassion. He is a long-time ally of Prime Minister Ehud Olmert, and never forgets to add that Olmert "invested many hours in every detail of the budget, and has given me full backing."

The real surprise was that Hirchson managed to get the support of all the Labor Party ministers (except for Peretz) and a big victory with 19 votes out of 24. And he did it his own way. His method had three stages: First attrition. He sat with each and every minister for as long as they wanted, explaining to each one the "situation." He spoke of responsibility and Zionism, about Israel's future and how foreign investors would flee if the budget framework was breached.

The second stage was using the large reserves put aside by the Budgets Division, and parceling it out among all the ministers. It was a total of NIS 800 million, most of which was planned in advanced. In most cases he simply had made a change in the budget so that later he could change it back and claim he was giving in to their demands - just as many of his predecessors had done.

Hirchson's third stage in approving the budget was actually the first, and most important: building the underlying relationships. He never offends or insults. He does not attack ministers or MKs. At least not on the record. The result is that no one has anything personal against Hirchson. And that is a huge negotiating advantage.

You have been Finance Minister for five months. Is it harder than you expected? Are you also enjoying it?

"The position bears a lot of responsibility, it is very central and has an influence on all areas of life in Israel. Responsibility more than enjoyment. [It is well known that Israeli ministers are not allowed to enjoy their jobs. They are always working, and it is always hard -N.S.] It has been five very difficult months. At first we passed the 2006 budget. Immediately after that the war in the North started and right after that we needed to deal with the 2007 budget, including all the required changes."

But the truth is you became finance minister by accident, just like Olmert became prime minster because of an unusual political event?

"I don't believe in coincidence. I successfully fulfilled, in all due modesty, the position of chairman of the Knesset Finance Committee. It is true that because of a specific political situation Kadima was born and after that Sharon's illness, and Olmert became party leader."

And you, because of your old friendship with Olmert became finance minster.

"I have been friends with Olmert for 40 years, but I didn't support him because of our friendship, but because I believed that he could be an excellent prime minister. And I am sure that I was chosen to be finance minister to carry out the job responsibly and with sensitivity, and not because of friendship."

A few months ago you said that it was necessary to cut the defense budget. Since then I no longer here the word 'cutbacks' in relation to defense spending, only increases. Are there no inefficiencies in defense?

"First of all, the cabinet must make a decision as to how the Israel Defense Forces needs to prepare for coming years, what are its goals and how it should carry them out. After that we need to decide how to move money around within the budget, and only after that to set the size of the defense budget. I have no doubt that the IDF needs to undertake budgetary soul-searching, and become more efficient."

You once again managed not to say the word cutbacks.

"Because I am not sure we need to cut. But we do need to set new priorities. For example, there is no reason for non-combat soldiers to retire at 43. They should serve in the army like in the civil service."

What about raising VAT?

"The governor [of the Bank of Israel] is worried about the deficit, but in 2007 we will sell the Oil Refineries and 10 percent of Bank Leumi, and receive NIS 7 billion so we will have reserves. In any case, I am against raising VAT, since it is an indirect tax that affects the weaker sectors."

And what about the government? Will it survive the conclusions of the Winograd Committee?

"Yes," said Hirchson with no hesitation. "It will survive and last out its entire term."