A hope-inspiring budget

New budget significantly higher than predecessor.

By JERUSALEM POST EDITORIAL
July 11, 2010 01:19
3 minute read.
Finance Minister Yuval Steinitz (Ariel Jerozolimsk

yuval steinitz 311. (photo credit: Ariel Jerozolimski)

At first glance, the 2011-12 budget proposal, unveiled last week by Finance Minister Yuval Steinitz, appears different from all those that preceded it. At second glance, too. What’s striking is the relative absence of “goats.” These are the local folklore equivalent of the red herring – something inserted by way of an extraneous distraction which is eventually removed when expedient.

Thus, conspicuously missing are such star features of the initial 2009-10 budget as value-added tax on fruits and vegetables, abolition of the Eilat VAT-free zone, etc. These traditionally stir up raucous pandemonium each budget season, only to disappear after ostensibly intense haggling as a Treasury “concession” in return for the approval of some budgetary edict or other.

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If anything, the slash earmarked for defense spending may be Steinitz’s one outstanding camouflaged “goat.” By “giving in” to some extent to the Defense Ministry’s protests, he may in the end require other ministries to “sacrifice a little.”

Features like higher cigarette excises cannot be counted in the goat category, as they are not likely diversionary tactics. Odds are that they are seriously intended to stay and that there won’t be a successful political crusade against them.

Indeed, barring unavoidable modifications by the time of the final Knesset approval, this seems an almost kind and gentle budget in comparison to the previous one, which was forged in the aftermath of one of the harshest global economic crises.

There are no ruthless spending cutbacks on most ministries, save for defense, which is slated to lose NIS 1.4 billion from promised budgetary increases but will probably suffer lesser losses.

In all, this is a hope-inspiring budget with an accent on education – especially higher education to prevent greater brain-drain – and on generating growth and new employment opportunities.

BUT HOW are these eminently imperative goals to be paid for? Some costs will be defrayed by whatever is ultimately cut from defense. Additional revenue is to be derived from higher fuel taxes and levies on communications giants like cellphone companies, as well as cable and Internet providers. But while these blows won’t marshal popular outrage, cutbacks in assorted National Insurance Institute benefits are sure to excite controversy, not least because the injuries here are inflicted on the greatest numbers and the weakest members of society.

Broadly speaking, all NII benefits would be eroded by about 1.5 percent, while employers would be forced to pay nearly 0.5% more to the NII.

Whatever is deducted from the already meager benefits for the elderly and infirm can only be regretted, as these are recipients who cannot go out and otherwise augment their incomes. In a way, the poorer segments of society are also disproportionally whacked by the two-year postponement of the next scheduled 0.5% reduction in VAT (from 16% to 15.5%). The national budget would thereby gain NIS 1.8b., but VAT is a regressive tax primarily affecting low-income households, where most earnings are consumed.

Hardly as regrettable are higher contributions demanded from employers who enjoyed special breaks in previous budgets and shouldn’t treat temporary discounts as permanent perks.

Perhaps the most welcome move is to postpone increasing child allowances by a year. Although this may well generate great commotion, there never was justification for the increase. The government was plainly held ransom by Shas. These allowances are a disincentive to work, chiefly in the haredi and Arab sectors.

Above all, this budget will be significantly higher – by NIS 16b. – than its predecessor, signaling perhaps that the frost of recession is thawing, which is good news for us all. This appears to be a benign budget in comparison to the drastic measures currently demanded of some of the struggling European economies.

Israelis wouldn’t be far off the mark to perceive this budget as a reward for our collective self-control and more stringent regulation than elsewhere during the recent international downturn. Israel did better than most other countries, and this budget is proof thereof.

Nevertheless, as Steinitz warned, spendthrift budgeting and lackadaisical loss of control could still result in travails similar to those of Spain and even Britain.


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