Once, when we were still talking about the 100-days team and structural reform, members of the new government liked to play with the idea of applying their economic polices. Prime Minister Benjamin Netanyahu was the chief strategist who would plan the operations, Minister of Finance Yuval Steinitz would implement them, and the entire economy would be changed beyond all recognition.
That was then. What remains of all this talk is just one big reform: the return of the Histadrut (General Federation of Labor in Israel) to the political arena, from which it withdrew in the early 1990s. Ofer Eini will not only represent salaried employees in negotiations with the regime. The man negotiating with the Ministry of Finance officials and Netanyahu's aides is a politician who also happens to be the chairman of the Histadrut.
Eini, first and foremost, represents the faction of Labor Party chairman and Minister of Defense Ehud Barak within the Labor Party, and is in effect its real leader.
The so-called state budget for 2009-10 is a political compromise between Eini and Netanyahu. The cornerstone of the compromise is a 3% annual increase in government spending; in other words, some of the budget cuts announced by the government just a few days ago are cancelled, including the cut in the defense budget.
Netanyahu will have to explain to Governor of the Bank of Israel Prof. Stanley Fischer why he had no choice but to capitulate to Eini. In order to avoid further unpleasantness, and in order to prevent an even greater budget blowout, it will be necessary to raise taxes, including the maximum income tax rate, and to try to neutralize any possible criticism by Fischer.
Bottom line, the fiscal policies declared by Netanyahu and Steinitz have taken a battering, and the government's credibility has been harmed.
Published by Globes [online], Israel business news - www.globes-online.com - on May 12, 2009
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