Steinitz in Love

The two-year budget exacts a high price from us; because of it there is no Economic Arrangements Law this year. As a result, we are not pushing through important reforms concerning water, health, communications, employment, airports and seaports.

Finance Minister Yuval Steinitz is in love. He is in love with "the greatest achievement we have seen here in the past 30 years - the passing of the two-year budget."

But if that's the greatest achievement, what about ending hyperinflation in 1985, opening the country to imports in 1991, removing supervision over foreign currency in 1998 and taking the provident funds out of the banks' hands in 2006?

Of course, Steinitz is greatly exaggerating. The two-year budget was not revolutionary at all. It was a result of necessity. We reached the middle of 2009 without an approved budget due to the election campaign, so there was no point in voting on a budget for only six months because we would have had to begin the process of approving the next budget immediately afterward. That's how the two-year budget was born; nothing to write home about. But Steinitz is in love.

Now he wants to turn this random accident into a regular practice and pass the state budget only once every two years.

It's true that a two-year budget has one advantage: MKs can extort the treasury only every other year. But it also has one major shortcoming: It does not allow for an immediate response to changes taking place in the economy: sudden growth, an unexpected crisis, a military operation or a technological change. The fact is, not a single private company dares opt for a two-year budget. They all understand that in our dynamic and uncertain world, you have to be as connected to reality as possible.

The two-year budget exacts a high price from us; because of it there is no Economic Arrangements Law this year. As a result, we are not pushing through important reforms concerning water, health, communications, employment, airports and seaports. So growth is harmed.

Therefore, instead of continuing to make love to the two-year budget, Steinitz should take action in several other areas.

He must prepare the Economic Arrangements Law for 2011 now, because this law is the only avenue for passing reforms. Every time any issue is excluded from the Economic Arrangements Law it gets stuck in the Knesset and becomes extinct. After all, in the current Knesset we have no coalition confronting an opposition. There is only a populist government. Everyone is opposed to any reform. Everyone is seeking newspaper headlines. The prime minister does not control a single MK, not even "his" MKs from Likud. They listen to lobbyists more than to him. All MKs run for the primaries from the moment they are elected, so populism reigns and reforms don't pass.

If Steinitz and Udi Nissan, the treasury's budget director, surrender and give up on the Economic Arrangements Law for 2011, they will go down in history as the ones who destroyed economic reforms, and therefore growth as well.

The second issue on which Steinitz must confront Benjamin Netanyahu like a lion is the prime minister's railroad craze. Netanyahu, under the influence of his economic adviser Uri Yogev, wants to cover the entire country with a rail network, like a Lego game - from Eilat to Kiryat Shmona, Haifa to Beit She'an.

He knows how popular that is. He knows that a railroad gives a politician an image of "activity" and "vision." A train photographs beautifully. It has power, and it is far more attractive than an ordinary nondescript bus line. However, every transportation expert says a national rail network is not suitable for a small country like Israel. A railroad is not suitable for outlying areas. In these regions it is better to widen roads and provide a cheap, efficient and flexible bus service.

But Netanyahu wants a "train for every worker." He wants to invest NIS 45 billion in railroads over the next 15 years - a tremendous waste of money that will be missing elsewhere. Steinitz has to stop it.

The third critical issue is wages. The chairman of the Histadrut labor federation, Ofer Eini, has declared that the industrial quiet is over, which means that the strike season is steadily approaching. Steinitz has to learn from a big mistake made in the economy in 1994, when the Histadrut applied pressure and the treasury gave in and handed out huge wage hikes to the public sector, which created a large deficit in the 1996 budget. As a result, economic stability was undermined, inflation began to rear its head and the balance-of-payments deficit increased.

To stop the inflation the Bank of Israel was forced to raise interest rates sharply, and the government was forced to cut infrastructure budgets. The result was a serious slowdown from 1997 to 1999 and an increase in unemployment - a steep social cost. Steinitz must prevent this, and that means standing firm against Eini.

The problem is that even if Steinitz behaves like a lion and does everything necessary, he cannot succeed because he has no backing from the prime minister to get involved in tough and unpopular battles. Netanyahu doesn't want wars. He doesn't want revolutions. He wants quiet. He only wants to survive.

That's why Steinitz is doing the accounting for himself and is fondly returning to his great love: the two-year budget.