Dei'ah veDibur - Information & Insight

A Window into the Chareidi World

28 Shevat 5761 - Febuary 21, 2001 | Mordecai Plaut, director Published Weekly








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Sharon to Raise Spending; Deficit to be 2.5% GDP
By M Plaut

Even as the headlines are filled with reports of coalition negotiations, and questions of whether there will or will not be a "unity" government including the Labor Party, new plans are being laid for the budget which are likely to have a greater impact on more people in Israel.

The budget for 2001 that was originally prepared was built when things looked great for the Israeli economy. Approaching Fall, 2000, growth was high, unemployment was falling and hi-tech was flourishing in Israel. Even though the stock market bubble had popped in the United States, the economy there still seemed strong.

Then the Al-Aksa intifadah started on erev Rosh Hashanah, dragging down tourism and making investors somewhat afraid. Also, perhaps even more importantly, the United States' economy showed serious signs of an economic downturn that has continued into what appears likely to be a full-fledged slowdown. Interest rates in Israel are still fairly high. The result is that the conditions which were assumed at the time that the 20001 budget were planned have changed considerably.

Prime minister-elect Sharon has already moved to adapt the budget, which was not passed by the previous Barak government, to the new conditions. To this end, the deficit in the 2001 budget is planned as 2.5 percent of the GDP instead of 1.75 percent, adding NIS 3.6 billion to the previously planned outlays. The budget deficit in 2000 was 2.5 percent of the Gross Domestic Product.

The moves parallel the steps being taken by the new Bush administration in the U.S. in reducing taxes to provide fiscal stimulus to the American economy.

In a meeting Monday between Sharon and leading figures in the Israeli economy, the prime minister-elect said that the extra money would go toward the development of both physical and human infrastructure, primarily in education.

It was already his second meeting with members of the business sector since the election and even before he has formed his government. Nonetheless, Sharon outlined a number of the economic measures he intended to implement as head of the economic-social cabinet, emphasizing privatization of government companies, the reduction to a minimum of government intervention in the economy and the promotion of competition.

The prime minister-elect, though he is not known for his experience economic affairs, seems to have quickly learned the generally accepted modern principles of economics management. These points are on the short list of what most observers say is wrong with the Israeli economy.

The prime minister-elect said he intended to afford preference to the high-tech field in order to prevent a brain drain. This would be achieved, he said, by means of a reduction in the tax burden and the unification of regulations.

When determining the deficit target for 2001 last September, the treasury, encouraged by Bank of Israel Governor David Klein, also declared a declining multi-year deficit target, setting a rate of 1.25 percent of the GDP from 2003 onward. That target corresponds with the accepted deficit target of the European Monetary Union known as the Maastricht agreements that paved the way for the introduction of the unified currency in Europe, the Euro.

In the meeting on Monday, Sharon said that he would work to implement a long school day, to improve the professional training of teachers and to better their employment conditions. He called on the leaders of the business community to exercise their influence in order to ensure the establishment of a unity government.

Sharon said that unity was important both for promoting the political process and also for creating stability in the economy and reinforcing Israel's international economic standing. A unity government would also improve Israel's ranking on the international capital markets, he said.

All the speakers at the meeting adamantly called for a reduction in the real interest rate in the economy. Moti Zisser charged that bureaucracy and foot-dragging in the government ministries constituted tough obstacles for the economy.

The heads of the Coordinating Bureau of the Economic Organizations initiated a meeting yesterday with Barak and called on him and the Labor Party to put aside their personal considerations and aspirations and join a unity government. The economic situation was deteriorating due to the situation around the world and in Israel, because there was no budget and in light of the drawn-out negotiations to form a government, they said.

The chairman of the bureau, Oded Tyrah, met later with Knesset Speaker Avraham Burg and asked him to support the establishment of a unity government. Burg said he intended to be among the leading supporters of such an initiative.


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