Shraga Brosh: Workers, Employers to Fund NIS 2.5b in Perks for Business

The main representative of the country's industrialists would like to clear up a misconception of how the national budget was agreed upon last week. "In contrast to the impression created last week," Israel Manufacturer Association president Shraga Brosh told TheMarker over the weekend, "the package deal between the government and the employers and workers was not dropped onto the heads of the Finance Ministry by the Prime Minister's Office; rather, it was put together in complete cooperation with them in a series of intensive meetings over the course of two weeks."

According to Brosh, the outgoing supervisor of budgets in the Finance Ministry, Ram Belinkov, took part in the meetings with Uri Yogev, economic adviser to Prime Minister Benjamin Netanyahu. Belinkov tendered his resignation last week in protest over the draft budget, and had some harsh words for Yogev. Brosh says the working dynamics between the two men were good and gave off no hint of the explosion to come.

"I did not sense any tension between [Yogev and Belinkov]," Brosh said. "When they sat with us in the office there was cooperation, actually. Perhaps there was tension behind the scenes, but it wasn't expressed toward us. I never heard Yogev impose his view on [Belinkov], and no one overturned any desks during the talks. The atmosphere was genuinely good. There were even smiles between them. Yogev kept asking, 'Rami, do you agree or disagree?' And the agreements were in keeping with this."

According to Brosh, the roundtable is in effect a metaphor for the way the budget talks were conducted, with all parties taking part at all times. "There were things that were agreed upon with the budgets division [of the Finance Ministry], and when we couldn't agree we brought our opposition up the chain, such as to the finance minister, the prime minister and his adviser. Some of our positions were accepted by the Prime Minister's Office, some were rejected," Brosh related.

Is it possible that you went to the Prime Minister's Office in order to make an end run around the treasury?

"The prime minister decided that he is the minister responsible for economic affairs, and naturally he was an active partner in the agreements, but the meetings were definitely held with the treasury and its officials. Some of the treasury people, such as Accountant General Shuki Oren, understood that measures had to be worked out together, and together with them we created the assistance package that will provide NIS 6 billion in guarantees for exporters. In late May a package deal is due to go into operation that is entirely the result of the work with the accountant general and with Finance Ministry Director-General Yarom Ariav."

What did you get from the prime minister and from Yogev that you didn't get from Belinkov?

"The arrangements regarding fictitious invoices. There was an advisory team with treasury officials that included Reuven Schiff, president of the Institute of Certified Public Accountants in Israel, aimed at finding the right way to deal with tax evasion. [In an effort to prevent the use of fictitious invoices to avoid paying taxes, treasury officials proposed shifting to computerized invoicing. Brosh opposed the idea on the grounds that it would impose a financial burden on all employers, the majority of which do not evade taxes.]

"Even though Yogev thought as we did, the treasury continued to oppose. Eventually we reached a compromise with Yogev, according to which a team would be created to find the best arrangement. The team will consist of Tax Authority head Yehuda Nasardishi, Ariav and Schiff.

"I see pettiness in submitting the fictitious invoicing law," he continues, "and in insisting on not reaching an understanding with the Institute of Certified Public Accountants, but maybe from the perspective of the budgets division it's a matter of principle. I requested to meet with them in order to reach a modus vivendi that wouldn't be a burden on doing business and would be enforceable. The criticism I received on this issue is misplaced. Someone tried to create disinformation and the impression that we are opposed to enforcement. We oppose tax evasion, which hurts us by creating unfair competition, but we won't agree to replace the entire invoicing system for businesses just to find out who's evading taxes. We say, 'Let's look for solutions that don't burden law-abiding businesses, which are the majority, and we'll make enforcement possible.'"

When Belinkov resigned, he claimed that Yogev was susceptible to pressure and that the package deal included aspects that could be called 'bribes.' Do you agree with these characterizations?

"Absolutely not. All of our conduct at the roundtable was with Belinkov's people, or with him [directly], as well as with Ariav and Yogev. I didn't feel that Yogev was vulnerable to pressure. There are things he didn't agree to give me and things he did. Belinkov, too, gave me some of the things I asked for, so does that mean he's susceptible to pressure?"

What did you get from Belinkov?

"For example, the budget for the Chief Scientist's Office [an increase of NIS 300 million], and NIS 400 million for educational institutions. Belinkov also gave NIS 900 million for the law that encourages capital investments and for aid to encourage tourism. All of these I received from him on Saturday night two weeks ago. He told me: 'Regarding education - depending on the resources available to me, you'll get between NIS 200 million and NIS 400 million,' and on the law to encourage investments he said I'd receive from NIS 600 million to NIS 900 million."

So why, in your opinion, did he quit?

"I don't know why, I can guess that he was uncomfortable with the budget. A person's wishes must be respected."

What are your impressions of Yogev?

"Yogev is a very calm, focused kind of guy. When we brought up an issue with him he studied it. We never got an answer on the spot, unless he was already familiar with the subject. After a day or two he would come back to us with a 'yes' or 'no,' or a different idea."

Did you coordinate with Histadrut labor federation chairman Ofer Eini prior to the budget meetings?

"We didn't coordinate our positions in advance. Eini was familiar with our economic plan because we've been talking about it for a long time. I was not partner to the Histadrut's requests from the government."

There's an asymmetry here. Could it be that your relations have soured since you proposed taxing profits on kranot hishtalmut [employee study funds]?

"Absolutely not. Eini didn't know, for example, that I was asking for NIS 400 million to renovate educational institutions. Regarding the private sector, he turned to me. For example, he requested that workers at places with properly elected union officers have the right to negotiate with their employers. I prefer talking first and avoiding a dispute. On other issues, he dealt with the treasury."

Where did Prime Minister Netanyahu become involved in the discussions?

"We came to Bibi [Netanyahu] with four final disagreements. He listened to us, to the treasury, to Yogev and the other interested parties and solutions were hammered out. For example, he agreed with us that in a city that is not part of a recovery program exceptional increases in municipal fees for businesses are out of bounds.

"On the other hand, he disagreed with us regarding the need to install waste recycling facilities at quarries. We argued that the owner of quarrying rights should not be required to install such expensive equipment, since it's not clear whether the quarrying rights will continue for long enough to recover the cost. Bibi said we should ask for a calculation of the number of years it would take to recoup the investment, and that a solution would be found for anyone whose rights were terminated during that period. It was agreed that an economic check would be carried out and a solution would be found to prevent damage being caused to whoever installed the equipment.

"In addition," Brosh says, "the treasury wanted to raise excise taxes on fuels for electricity production in order to encourage the Israel Electric Corporation to use 'green' fuels. I said that at this point the increase would [end up being] passed on to the manufacturers. Bibi said we were right and it was agreed that when private production reached 15% of the country's electricity production, competition would be created and then the idea could be revisited."

You sound satisfied with the package deal, but your partner in the liaison committee for Israeli economic organizations, president of the Federation of Israeli Chambers of Commerce Uriel Lynn, claimed this is bad for employers and creates total dependence on the Histadrut.

"I have no interest in commenting on this. I can say that at the meeting of the liaison committee at which the plan was reported, Lynn praised the 'unprecedented' achievements - in his words - that we reached. Regarding the Histadrut's achievements he admitted that he got his information solely from journalists. The deal allows the economy, and employers as part of it, to profit."

The budget gives employers NIS 2.5 billion for two years, and on the other hand imposes hardships on the public, such as the increase in VAT. Are you comfortable with this?

"The hardships imposed on the public pay for a NIS 14 billion deficit that was submitted to the cabinet for approval about 10 days ago. The deficit is paid by taxes on the public and an increase in state spending. It includes mainly spending for the military, as well as the rest of the government ministries.

"The effect of the incentive package on the business sector amounts to about NIS 2.5 billion beyond this deficit. Most, if not all, of the addition is funded by employers and employees. [Employees gave up an estimated NIS 1.5 to 2 billion in rest and recovery alowances and employers increased their National Insurance Institute payments by NIS 550,000.]"

You agreed to support government reforms, one of which touches on privatization of the country's seaports. Will you bid for the opportunity to operate the Ashdod port?

"Regarding port tariffs, the ministers of transportation and of finance will will issue new regulations, and we will make our position on these known to them. There is agreement between the importers and exporters regarding the tariff structure, and we will discuss this also with the ports management.

"Regarding the privatization: Currently the government can put up for sale only 15% of the ports, and it can reduce its stake in them to below 51% only in 2010. We think the state must first give up its controlling stake. We proposed that the Manufacturers Association, the Federation of Israeli Chambers of Commerce and the port employees purchase the controlling interest in the Ashdod port. The government must make a decision on the matter."

In January 2011 you will end your term of public service. Do you believe that the package deal you reached at the roundtable will improve your public image in Israel?

"There are no personal issues involved here, I represent the business community. The money will go to those causes that the roundtable believes will lift the economy out of its crisis. But despite the fact that none of this is personal, everything is personal. When there's chemistry between people, and mutual commitment to solving problems, the roundtable model is excellent."