1. Benjamin Netanyahu has lost control of the economy. It started in a hasty moment three years ago, when the newly elected prime minister decided in favor of Histadrut (General Federation of Labor in Israel) chairman Ofer Eini and the agriculture lobby, and re-sanctified the VAT exemption on fresh produce. He thus forewent annual revenue of NIS 2 billion and equality of treatment in VAT. Since then, it has seemed to him that he was getting lots of free lunches. He guzzled them down, but he knew that the situation in the US, in Europe, and in China was growing worse, and would affect Israel badly. At a certain point, Netanyahu looked for someone on whom to lay the blame. He searched and searched, until he looked in the mirror, saw his own image, and realized that the crisis was at hand, that 2103 would be one of the toughest years Israel has known, and that he was the gatekeeper at the entrance to it. To his credit, it should be said that the moment he stopped making up excuses for himself, and that happened only last week, he got down to work immediately.
2. About NIS 30 billion that's the amount that will be added to expenditure in the 2013 budget because of decisions about spreading spending over several years that the government has taken in recent years, and routine rises in spending because of the rise in the number of children, and higher pensions and health costs.
A source of finance for this amount will have to be found, besides for other regular spending in the budget, such as salaries NIS 100 billion; defense over NIS 60 billion; the National Insurance Institute NIS 70 billion; debt servicing about NIS 35 billion; and so on and so forth.
Of course, each item looks reasonable, sensible, necessary, and what not. The doctors work hard at night, university lecturers are important, contract workers are miserable, the defense establishment is coping with threats, and so on. The problem is that this accumulation of expenditures has brought us to the precipice.
3. Here is a partial list of other automatic items in the 2013 budget. The transport plan: shortly after this government took power, the prime minister presented the NIS 67 billion multi-year plan of Minister of Transport Yisrael Katz. After pressure was brought to bear by the Ministry of Finance, the plan was pared down to NIS 27.5 billion. That means NIS 5-6 billion next year, including financing of the Tel Aviv light rail and the Haifa mass transit project. The wage agreement signed with the Histadrut will cost NIS 6 billion in 2013.
Defense: At a certain stage, Manuel Trajtenberg, head of the Trajtenberg committee, announced that he would not complete his report without the prime minister's agreement in advance to a cut in defense spending to finance parts of the report's recommendations. Eyal Gabai, director of the Prime Minister's Office and a member of the committee, was sent on the mission and came back with the "Gabai document", with the prime minister's signature. The paper bore a compromise number: a cut of NIS 3 billion. It was never carried out. To that has been added an amount of NIS 2 billion, as an addition to the defense budget this year, at present a one-time supplement. This does not include the cost of the southern border fence.
Higher education reform: NIS 7 billion on a multi-year track that includes salary rises for lecturers. This requires about NIS 1 billion next year.
The doctors' agreement: After a prolonged strike and the manipulations of the managers of two hospitals in the center of the country, Netanyahu pressed the Ministry of Finance to end the matter and compromise. Otherwise, he threatened, he would be forced to intervene. A costly multi-year agreement was signed that involves an additional NIS 1 billion next year.
Education: Reform agreements with the teachers will cost NIS 1.5-2 billion; abolition of payments by parents NIS 0.5 billion; free pre-school education NIS 2 billion; the agreement with the firefighters NIS 0.5 billion extra; wage agreements with contract workers about NIS 700 million; the Prime Minister's Office's "Heritage" program NIS 600 million.
4. The decisions that will be taken this Monday on this year's budget, 2012, are only the beginning, a small, painful drop in the great ocean of cuts that will be required in the 2013 budget. Will Netanyahu prepare the next budget and pass it? Not necessarily. There is certainly the possibility that he will choose, and it depends solely on him, to break up the government over the issue of equality in conscription, just in order to avoid preparing the budget and pushing it through the Knesset, especially as there is considerable doubt whether he will be able to pass an austerity budget, even among his faithful coalition partners.
Published by Globes [online], Israel business news - www.globes-online.com - on July 25, 2012
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