The Bottom Line / A Tale of Three Budgets

Budget 1. Two and a half months have passed since the beginning of the year, and there is still no sign of a government budget, yet everyone carries on as usual.

Budget 1. Two and a half months have passed since the beginning of the year, and there is still no sign of a government budget, yet everyone carries on as usual. No government agency seems to be under pressure, and there is money for everyone. So why have a budget at all? Why not just carry on like this for another nine months, and save all the hassle and bother of writing a new state budget year after year?

The Basic Law on the Economy states that if the Knesset does not pass the national budget by December 31, the government may spend one twelfth of the previous year's budget each month in order to meet its legal commitments and supply essential services. "May," not "must". In other words, one could interpret the law narrowly and make it more difficult for government ministries to go about their work, thereby increasing the pressure to pass the budget. But Finance Minister Benjamin Netanyahu, Accountant General Yaron Zelekha and Budget Director Koby Haber interpret the law more generously. They allow projects to carry on, take on new staffers (such as Netanyahu's new spokesman), transfer advances to public institutions and even convene extraordinary committees. Although some projects have been held up, there is no cause for any true pressure.

In the United States, when the budget does not get passed, the administration grinds to a halt. No wages are paid. Employees go home. There are no public services. Everything stops. And within a few days, the pressure mounts until Congress passes the budget. But here, we play a different game of bluff. There may be no budget, but we all get along as if there were.

So the law should be changed to state that if the budget is not passed by December 31, then the government is out. This would vastly improve stability and reduce political extortion. All the horse trading that we see today would move to December. This would be good for the economy and for politics.

Budget 2. The government is always short of money. It cannot update the health basket, increase state pensions or provide a subway for Tel Aviv.

This subway has been discussed for a generation. Now there are reports that it - or at least the first line - will be up and running by 2011. The slow pace of progress is due to the shortage of cash. It would entail sums of NIS 8-9 billion.

It is truly amazing that when we come across a political or military expense, like Operation Defensive Shield in 2002, or building the separation fence, or the disengagement - there is money. Only recently, the compensation for settlers to be evacuated was increased by NIS 1 billion, and the treasury found NIS 6.4 billion to finance the disengagement. It's all politics. If you want it, there is money for it. The question is what the order of priorities is.

Budget 3. The year 2004 ended with a real 8.4 percent increase in tax revenues. This is an interesting phenomenon known as the Laffer Curve: When tax rates are reduced, tax revenues rise. This occurs when tax rates are very high, so that cutting them encourages more economic activity.

True, there have been additional reasons for the increased economic activity. High-tech has begun to flourish anew, and the intifada has died down. Even so, the reduction in taxes has proven itself, so this policy should be continued: We should further reduce government expenditure and taxes, thereby encouraging economic activity.