'Social agenda replaced by painful changes'

Finance Minister Hirchson vows not to raise taxes regardless of pressure.

The social agenda that was supposed to take off next year was replaced by painful changes of priorities in the 2007 budget, Finance Minister Avraham Hirchson said Wednesday. "2007 was supposed to be the year to deal with social problems and issues, but unfortunately the war in the Lebanon changed our set of priorities," Hirchson said at the Prime Minister's Conference organized by Israel Export & International Cooperation Institute. Instead, the government now needs to focus on keeping spending growth and the fiscal deficit under control, following the hostilities in the North. "Our economy can only grow if we adhere to consistent economic policy and principles," said Hirchson. The costs of the war, estimated at NIS 15 billion, added Hirchson, ate up the government's surplus and painful changes, therefore, needed to be made for the 2007 budget, which passed the first reading in the Knesset on Tuesday by a large majority. "However, no matter what the pressures are, we will not raise taxes," he said. Still, Hirchson forecast that as the country's economy recovers from the war, the gross domestic product was expected to grow by 4.6 percent in 2006. "The Israeli economy and society is growing but it is not healthy," said Hirchson. "The central threat to continued economic growth is widening social gaps and, therefore, I will do my utmost to ensure that in 2007 we will start to prepare the process of closing social gaps by instituting negative income tax." Also speaking at the conference, Prof. Stanley Fischer, Governor of the Bank of Israel, emphasized the importance of Israeli exports as an engine for economic growth. a"We are experiencing rapid growth," he said. "If I had to guess which side of 4.6% it will be, it will probably be above and not below." Regarding, the budget deficit, Fischer, forecast growth of between 1.5% and 2%. In response to the question of why the shekel was so strong, Fischer countered that if taken against foreign currencies, the shekel was not strong, rather that it only was against the dollar. "The shekel is not strong," he said. "Everyone thinks in shekel against the dollar, but a significant part of our trade is with Europe and the shekel is not strong against the euro." Fischer added that exports were growing as the shekel weakened against the euro and against other foreign currencies Israel was trading with. This, in turn, he said, had offset the impact of the shekel's strength against the dollar.