Fischer: Next gov't must control budget deficit

Israel must cut bureaucratic red tape to spur business growth, BoI governor says, calls for fiscal responsibility.

By NADAV SHEMER
Bank of Israel Governor Stanley Fischer 370 (photo credit: Sasson Tiram)
Bank of Israel Governor Stanley Fischer 370
(photo credit: Sasson Tiram)
Bank of Israel Governor Stanley Fischer delivered some early advice to the next government Monday, saying that whoever is elected in January must put the completion of a solid budget at the top of their agenda.
“The concern is that, because of the political situation, we’ll have a budget which just scrapes by the criteria,” Fischer said during an interview with CNN’s Richard Quest at the annual Globes Business Conference in Tel Aviv.
“What that means is that the next year in 2014, we’ll find ourselves again scrambling to get close to a budget target that is not as ambitious as it should be… If we don’t get it under control in 2013, it will be much harder to do so in the future. Putting off these problems very rarely works,” he said.
Pointing to a Treasury forecast that the 2012 budget deficit will blow out to 4.2 percent of GDP, Fischer said it would be difficult to approach future targets with confidence if the 3% goal set for 2013 is not met. Given that Israel is close to full employment, he added, the next government will need to cut expenditure by about NIS 15 billion and raise taxes a little if it is to meet next year’s target.
Asked what happens to politicians when they get their hands on a budget, Fischer said there is “a natural tendency” to spend more money because that is what the population demands. This causes governments to favor deficits, he explained, but provided examples from two other countries to demonstrate that cultural change is possible.
“Canada in the 1990s and Australia in the 1980s were chronic deficit countries. In Australia it is now [considered] bad for a government to run a deficit, and in Canada they also worry more about deficits. Why? Because they cut their deficits, and in both cases they grew much faster and they saw the results of running a decent economic policy,” Fischer said.
The next government’s other major economic concern, according to Fischer, should be Israel’s deteriorating business climate. Referring to the country’s ranking of 38 in the most recent edition of the World Bank’s annual “Doing Business” report, he said that the new government must cut bureaucratic red tape if Israel is to achieve higher economic growth.
On the other hand, he said that a large part of Israel’s economic vulnerability stems from the global slowdown and its effect on export demand. Global economic and geopolitical uncertainty could be a potential source of difficulty for the next government, he explained.
Quest, who is known for taking a light-hearted and jocular approach to big-name interviews, pushed Fischer to talk about his plans for the day after his second term as central bank governor expires in May 2015.
“I know you’re working on behalf of somebody but I can’t figure out who it is,” a smiling Fischer responded.
Becoming more serious, he said, “I want to stay. We are strongly connected to Israel.
We have family in the States.
We have to decide what we’ll do, but I’m not going to disappear from the local scene – that’s for sure.”
But Fischer basically ruled out taking another public role in Israel, adding, “There are very few jobs that I would prefer over this one and I don’t think any of them are available or likely to be available.”