The good, the bad and the lady

The economy is entering a recession, the number of people losing their jobs has risen, the budget deficit is frightening.

The year 2009 will not be an easy one, economically speaking. The economy is entering a recession, the number of people losing their jobs has risen, the budget deficit is frightening, and from every direction all that can be heard are cries of disaster and distress.

But for politicians, this is the best possible time. People want a magic solution that brings no pain, but only good, and this is extremely fertile ground for scattering wild, baseless promises - something at which our politicians are expert, especially on the eve of an election.

In this battle of promises, Ehud Barak has broken all the records. At the annual Manufacturers Association conference last week, Barak declared pathetically, "This is the time for an immediate, dramatic expansion, with no budgetary limitations." He also said the deficit could even go as high as 7 percent (!) of gross domestic product. These are wild, irresponsible statements that, if carried out, would not only fail to rescue the economy from its crisis, but would worsen it.

In a single breath, Barak disbursed billions of shekels that he does not have, mainly to the industrialists sitting in the hall. He spoke about infrastructure, research and development, retraining workers at the government's expense, granting loans and guarantees, and so on and so forth. These are delusional and dangerous statements.

In his enthusiasm, Barak forgot to mention one tiny fact: his demand that the defense budget be increased by NIS 4 billion "to cover the expenses of the war," even though the army recently received a huge budget increase thanks to the implementation of the Brodet Committee's recommendations. Because Barak wants both, he has no limits.

The plan presented by Barak is mistaken and dangerous. We must not increase government spending now, when the budget deficit is already expected to be large and threatening due to the plunge in tax revenues. All we can do is move money around within the budget, without increasing overall spending, and only in compliance with two conditions: The expenditure must be rapid if not immediate, and it must expire on its own within a year or two, so that it doesn't become a permanent expense once the economy resumes growing.

Benjamin Netanyahu also did not hold back on promises. He told the industrialists, and the public, exactly what they wanted to hear - that he would cut both income and corporate taxes sharply, use the American loan guarantees to deal with the credit crisis, grant manufacturers accelerated depreciation, carry out reforms at the Israel Lands Administration and substantially increase the research and development budget. The hall rang with applause. Isn't Netanyahu wonderful?

Of the two programs, Netanyahu's is preferable. Lowering taxes instantly increases the desire to invest. It also encourages multinational corporations to pay their taxes in Israel rather than in Europe. And the fact that lower taxes serve as a growth engine for the economy was proven back in 2003. Then, too, timid and conservative economists warned that the budget deficit would rise because tax revenues would fall. But they were wrong then, and they are wrong now - even if they are "senior Finance Ministry officials." Then, lowering taxes actually raised the state's total income from taxes, and the same will happen now.

Prof. Robert Barro of Harvard University, one of the world's leading macroeconomists, wrote recently that raising government expenditures by one dollar does not increase the gross national product at all. In contrast, a recently published study by Christina and David Romer of the University of California, Berkeley showed that lowering taxes by one dollar raises GNP by three dollars. In other words, lowering taxes is better.

Nevertheless, Netanyahu is also guilty of the sin of populism. He did not tell his audience how he would finance the rise in government spending he is planning. It is not popular to talk about the need for large-scale cuts in the budget and in public-sector wages. It is better to talk about what the audience likes to hear. But it is clear that Netanyahu's program will require large-scale cuts in current expenditures.

And what about Tzipi Livni's economic plan? Livni spoke neither about an irresponsible budget increase nor about sharp tax cuts. But she also winked at the public when she said it was necessary to increase the safety net for pension savings, increase the budget for investment and set up a government fund to help manufacturers.

In other words, not much has changed here since the days of Sallah Shabati. Then, the politicians led the public astray through baseless promises; today, they surround us with deceit. All that matters is that we put the right ballot slip in the box in another two weeks - for whoever promises the most, whoever hands out the most expensive gifts, even if these promises will never be fulfilled.