ASHER MEIR 58.
Only last year did we obtain confirmation of large gas finds off Israel’s coast,
and only a few weeks ago was the Sheshinski Committee's proposal for taxing the
gas submitted to the Knesset for consideration. No gas is expected to be pumped
in the next few years, only some years later will there be profits, and later
yet the “superprofits” subject to the special levy proposed by the committee.
But the Knesset Finance Committee is already wrangling over what to do with the
Many committee members do not want revenues from gas pumped in the
sea to go into the ordinary current revenues of the government. Rather, they
want the money to be set aside in a special fund whose permitted uses would be
designated in advance.
Many other countries have such special mineral
funds; Kuwait has had its own “sovereign wealth fund” since before it was even
sovereign, and more recently Norway established its special Petroleum Fund. Both
funds manage hundreds of billions of dollars, despite citizenries of only a few
million. Eugene Kandel, the head of Israel’s National Economic Council, endorsed
starting such a fund in Israel, and later Prime Minister Binyamin Netanyahu
expressed his intent to establish one.
Such a fund can serve several
purposes, but it can also be subject to several objections.
One object of
such a fund could simply be saving up for a rainy day. In the early days of the
state, Israel ran up huge trade deficits, as do most young countries (including
the United States which ran up trade deficits well into the 19th century). Just
as an energetic young couple is likely to take out a mortgage relying on their
future ability to earn enough to pay for their home, so an energetic young
country is likely to borrow from abroad relying on its anticipated future
growth. But in middle age as income reaches a peak couples typically begin to
save for retirement. Countries do not retire but the underlying sound idea is
that when income is currently higher than it is expected to be in the
foreseeable future it is prudent to save. There is a finite amount of gas in the
offshore wells, it is likely to run out in a couple of decades and maybe Israel
should put a little aside for the future.
Another object is to insulate
certain revenues from the rough and tumble of political wrangling. All of us may
agree that providing for future needs such as pensions or education is prudent,
but somehow in yearly budget negotiations, outlays deemed urgent seem to take
priority over those deemed important. Setting up a fund is a way of taking a
step back and agreeing that certain funds will be outside the usual annual
There are also macroeconomic justifications for these funds. If
mineral wealth brings in foreign currency it can drive up the value of the local
money, harming export industries; by investing the revenues in foreign assets
the pressure on the local currency is reduced. If the money is spent too rapidly
it can lead to inflation and an “overheated” economy; investing in the fund
ensures the money is spent more slowly.
BUT SUCH funds also have their
downsides. The saving-up justification is subject to question; Israel is still a
young and growing country, and it is questionable if its economic circumstances
will really be worse in twenty or thirty years than they are now. The insulation
objective is also questionable; Knesset budget disputes may be volatile and
sometimes petty, but ultimately we do want public expenditures to be subject to
Why should the current government be allowed to decide
how future governments will spend their income? Indeed, when Finance Minister
Yuval Steinitz commented that it is premature to discuss what to do with the
revenues since they aren’t expected for years, a committee member reportedly
replied that the current government won’t last that long. That is actually a
good reason not to designate future uses now.
Another concern is that
governments are good at many things, but managing large economic enterprises is
usually not one of them. If there is a fund, who will be the fund manager? How
much discretion will he or she be given? How will economic interests (maximizing
return) be balanced against political interests? Given the dynamic economic and
political situation faced by Israel – and by the rest of the world – perhaps it
is futile to try to predetermine all of these considerations.
personally am not convinced by the arguments for a fund. The amount of revenue
anticipated is large, but not yet on the scale of Norway or Kuwait; Israel still
has foreign debt and it is premature to talk about having foreign holdings; and
furthermore the underlying justifications are not fully persuasive. But a little
forethought is a good thing and it will be interesting to see where the
discussions email@example.com Asher Meir is research director
at the Business Ethics Center of Jerusalem, an independent institute in the
Jerusalem College of Technology (Machon Lev).
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