PMO Official Calls Treasury's Growth Forecast Conservative'

Ilan Cohen, director general of the Prime Minister's Office, is upset at the Finance Ministry's conservatism; While the treasury expects the economy to grow by 3.9 percent next year, Cohen believes growth is headed for 4.5 percent, and perhaps even 5 percent.

However, Cohen does understand the treasury's cautious approach. "It's better to be pleasantly surprised than to expect 5 percent growth and in the end be disappointed with 4 percent," he said in an interview with Haaretz. In particular it is dangerous to take risks or to disappoint foreign investors, he said. Nevertheless, he continued, Israel should not be satisfied with GDP growth of 3.9 percent. If Israel wants and needs to close the income-per-capita gap with the OECD nations, it must aim for a minimum of 4.5 percent growth each year and increase GDP by $70 billion within a decade.

Cohen rejects critics' claims that the government is doing too little to cut the deficit and national debt. The 2006 budget sets a higher deficit for 2006 than in 2005, but Cohen says that the budget deficit is reasonable, given the need to develop the economy. He added that selling the state's stake in Bank Leumi would help significantly reduce the national debt.

As for spending on defense, "Israel spends around 8 percent of GDP on defense, compared to 4 percent in OECD countries. It would be very difficult for us to cut back to 4 percent, as we are in a continuous war and because we are such a small country," he says. "Nevertheless, if we maintain defense spending at the current level, and even cut it a little as we have done this year, and if the economy grows by 5 percent - then within a decade defense spending will fall to only 5 percent of GDP."