Even as Prime Minister Ehud Olmert said efforts to advance efforts to resolve the Middle East conflict were helping to boost economic growth to at least 5.5 percent in 2007, business leaders warned Monday that a poor education system and widening social gaps were threatening future growth.
"The trend of growth we experienced over the past four years will not last forever. There will not be significant growth if there is no horizon of peace and I make this point following Annapolis," Olmert said at the Globes Israel Business Conference in Tel Aviv. "Without a two-state solution, the existence of the state of Israel and its economy are in danger. I intend to carry out serious negotiations in order to create an historic breakthrough."
Setting out the government's economic targets, Olmert added that the aim was to accelerate GDP growth to an annualized 6%, increase employment participation of the 25 to 34 year-old age group to 71.7% by 2010, recruit the haredi and non-Jewish populations into employment, reduce poverty levels and invest into education.
"Our poor education is becoming more dangerous to our existence than the Hamas or the Hizbullah," said Eli Hurvitz, chairman of Teva Pharmaceutical Industries Ltd. "Although we are today growing at healthy and strong GDP rates, the widening social gaps and worsening education standards are worrying representing an economic obstacle and a serious threat to our very existence. We have no chance of growing at high growth rates if education and employment levels remain low."
Hurvitz added that for the economy to grow around 6% over the next 20 years, the country needs to improve education, increase employment participation, close the social gaps and ensure good leadership. As a result, Israel could grow to be one of the 10 to 15 largest countries in terms of income per capita.
"It seems that the heart of the matter is the difficulty in explaining why in a time of growth and prosperity we continue to insist on budget policy, and why we don't use the surplus tax revenues," said Finance Minister Ronnie Bar-On. "Education is the tool for boosting economic growth and investment into education is the right investment for the long-term but not at the price of breaching the 2008 budget."
Bar-On admitted that the government had failed in its mission to explain the change in priorities and the necessity of maintaining responsible budget discipline.
"We have tried to explain that this government, in contrast to its predecessors, is a government with social priorities and a government that needs to limit fiscal spending to keep the budget framework," said Bar-On, who, again and again, was interrupted by protests from striking teachers demanding higher salaries. "The demand by private bills and the public to raise the government spending ceiling, which could breach the 2008 budget framework, has raised concerns among foreign investors."
Meanwhile, Bank of Israel Governor Stanley Fischer told the conference it would be very dangerous to accept these proposals.
"Adherence to a rigid framework of discipline based on budget targets for its expenditure and the budget deficit greatly enhanced credibility in the eyes of investors and in the domestic and international financial markets," he said. "Abandoning the targets set by the government itself is likely to severely undermine its credibility, and will cancel much of the progress that has been made. Just now, when uncertainty about continued global growth has increased, we must not go back on our undertakings."
At the same time, Fischer said the essence of the government's strategy to achieve rapid and economic growth was fiscal discipline, which has reduced the poverty rate and unemployment.
"Growth of more than 5% a year, which the economy has been enjoying since 2003, significantly improves the standard of living of the whole population," said Fischer. "The rate of poverty actually declined in 2005 as well as in 2006 and the decline in unemployment since 2003 can be seen at all educational levels, including the lowest."
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