Experts expect little change in fiscal policy after it emerged that Avraham Hirchson would be named the next finance minister amid news of a coalition agreement between the Kadima and Labor, which was expected to bring a stronger focus on welfare issues by the treasury.
"Hirchson was a reasonable tourism minister and belongs to those who believe in the market and knows how the economy functions," said Roby Nathanson, chairman of the Israel Institute for Economic Social Research. "I believe he will have a very responsible approach."
Because the basic framework of the budget has already been defined, and once Kadima managed to retain the position, Nathanson noted that whoever took the Finance Ministry would have little impact on its operations.
The main difference will be a stronger focus on welfare issues than the treasury allowed for under Netanyahu's tenure as finance minister, after issues including minimum wage, child stipends and pensions dominated coalition talks between Kadima and Labor.
Leader Capital Markets analyst Jonathan Katz expressed concern that the government would implement a fiscal policy that is too expansionary and not bring a decrease in the high debt-to-GDP (gross domestic product) ratio Israel currently has.
"It's all a question of degrees," Katz said. "If the government goes overboard and radically changes fiscal targets, the markets will not react positively at all."
He added that the market had already been encouraged when the treasury was retained by Kadima, and not handed over to Labor, given that interim Prime Minister [and outgoing Finance Minister] Ehud Olmert is big on maintaining fiscal credibility.
Nathanson, meanwhile, noted that an expected surplus of around NIS 9.8 billion in the 2006 budget will allow the government to easily allocate approximately NIS 2.7b., as agreed to in the coalition talks, to change the priorities towards social matters without affecting the framework of the budget or a change in fiscal policy.
"There will be some internal changes in priority, but we don't expect any changes in fiscal policy, industrial relations or in the budget," said Nathanson, who expects Hirchson "will signal to the market, to the stock exchange and foreign investors that Israel will go for a very responsible economic policy."
Hirchson will take office with reasonable training for the job, having served as Chairman of the Knesset Finance Committee and as a member of the economics committee in the 16th Knesset before being appointed tourism minister.
He was at the forefront, together with former Finance Minister Netanyahu, in advocating a liberalization of Israel's aviation policy, controversially opening that market to further competition.