Talansky Economics

In sum, it is already possible to determine the price tag for the bribery suspicions: a bloated budget and failure to implement important reforms.

In another two weeks, the finance minister is supposed to present the prime minister with the 2009 budget. In another month, the cabinet is supposed to discuss the budget proposal and make difficult decisions. But in the current situation, none of this will happen.

Even before news broke of the suspicions that he took bribes from Morris Talansky, Ehud Olmert's political status was extremely shaky: He has no control over the coalition, neither the ministers nor the Knesset members. And when suspicions of bribery, which weakened his status even further and made his resignation and early elections more likely, are added to the mix, we wind up with a paralyzed prime minister incapable of making decisions, whether diplomatic or economic. Therefore, the task of passing a responsible, reformist budget for 2009 currently seems impossible.

Two weeks before Pesach, Olmert promised Finance Minister Roni Bar-On that by seder night, the cabinet would have approved the necessary NIS 1.5 billion cut in the 2008 budget. To date, however, no decision has been made. Olmert keeps postponing the cabinet meeting. He does not like to cut, and he also knows that in the current situation, many ministers and Knesset members would vote against the proposal. After all, each of them is bearing in mind that this government's end is nigh, and each is therefore trying to curry favor with the voters. In Israel, that means opposing budget cuts and supporting increased expenditure. Populism rears its head at times like these.

The need for an especially deep cut in the 2009 budget was created by the prime minister's generosity. Every week, proposals would be submitted to the cabinet for instituting new and far-reaching programs, and our good-hearted ministers, led by the generous Olmert, would approve them. However, they would attach one reservation: The programs would start only in one year's time, because the current year's budget was already stretched too tight. Now, "one year's time" has arrived - 2009.

These myriad and varied programs include a huge budget increase for the Israel Defense Forces, a war on poverty, a reform of elementary education, hefty raises for teachers, major investments in roads and railroads, increased budgets for Holocaust victims and the elderly, assistance for at-risk youth, establishing day-care centers for at-risk children, increasing the "health basket" of state-funded medical care, expanding the police force by 1,000 policemen, reinforcing homes in Sderot, increased benefits for reservists, additional funds for evacuated Gaza settlers, a recovery program for the Israel Broadcasting Authority and much more.

But even if each of these goals is worthy and justified in itself, there is not enough money to implement them all. It is necessary to set priorities - something Olmert particularly loathes. He likes "both," not "either-or."

Officials from the Finance Ministry's budget department say they will not implement any decision unless there is funding for it. Therefore, they are not worried. They say they will not increase state subsidies for El Al's security outlays, build new classrooms or provide money to hire 1,000 new policemen. "We've transferred funds for hiring 200 policemen, and that's it; we don't have any more," they say. That sounds courageous, but in our political reality, it will not last.

When Olmert assumed the job of prime minister two years ago, he made one significant change: He raised the limit on the budget's expansion from 1 percent a year to 1.7 percent. That enabled him to spend another NIS 1.6 billion a year. Today, this minuscule amount does not satisfy the beast, and Olmert wants to raise expenditures by 2.5 percent a year. That would give him an extra NIS 2 billion to waste.

The problem is that even this increase would not be enough. The cut that would be needed to meet current spending restrictions is far larger - more than NIS 10 billion in the 2009 budget.

But a new idea has arisen in internal discussions in the Prime Minister's Office: off-budget expenditures. This idea has already been used to fund the disengagement and the Second Lebanon War. The argument is that these are one-time expenses, and therefore, it is okay to approve the additional outlays for a two- or three-year period - outlays that will disappear of their own accord thereafter - without including them in the base budget. And that is indeed what happened.

What is at issue now, however, is not a war or a settlement evacuation, but long-term programs that are integral parts of normal government expenditure. Therefore, creating additional off-budget expenditures is nothing more than throwing sand in the public's eyes.

In sum, it is already possible to determine the price tag for the bribery suspicions: a bloated budget and failure to implement important reforms. And the result will be a less stable economy, with slower growth, lower investment and higher unemployment.