The Treasury boys got it wrong

By ANSHEL PFEFFER
September 5, 2006 02:35
3 minute read.

 
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Social pressure groups routinely demonize Treasury officials for "selling the country" to a handful of rich families and multinational companies. In exchange for highly paid jobs after they leave public service, these officials are supposed to have created an economic climate of low taxes and various other incentives for the rich, and pushed through privatization of national assets, while insisting on a low deficit and cutting benefits for the poor. The "treasury boys," as their detractors call them, and their defenders in the Knesset and media answer that they are merely doing what it takes to ensure Israel's booming economy. Up to this point it's a standard argument of fiscal philosophy, similar to those taking place in most Western countries. But there is an underlying reality to the criticism of Treasury officialdom. The upper echelons of the Finance Ministry and especially its elite unit, the Budget Department, are a self-perpetuating meritocracy. The brightest graduates of the economics faculties at the Hebrew University of Jerusalem and Tel Aviv University are recruited through a rigorous process in which they are vetted, their personal ideology is examined for any signs of dangerous beliefs and they are inculcated with the importance of their position. Once through the selection, bright and eager men and women, still in their twenties, are put in charge of the various ministries' budgets, hundreds of millions of shekels, the livelihood and future of hundreds of thousands, and often have more power than some cabinet ministers. The budget "referents" quickly get used to sitting at high-powered meetings with the prime minister, and can often be seen arguing as equals with Knesset members at sessions of the Knesset Finance Committee. Thanks to their expertise and the department's accumulated experience, they believe they are the only ones qualified to decide the size and priorities of the state budget - certainly not a bunch of political dilettantes and populist journalists - and they are the real guardians of the country's future. Few governments manage to make a significant change to the budget crafted by the unelected officials. Every year, toward the end of August, the Budget Department presents its proposal for the next year's budget to the government. The finance minister is always already on board and the long, arduous battle to push it through the cabinet, the Finance Committee and three readings in the Knesset begins. The Treasury boys (there are also girls) never get everything they want. each minister has pet projects and beloved items, and the various political parties have to be "bought off" with billions allocated to their special interests. Some ministries have their own powerful clique of senior officials. The IDF General Staff is the most influential, and they battle with the Treasury officials, often over the politicians' heads. Due to their experience, the budget people usually know what they'll manage to push through and which items almost certainly prove anathema to the politicians. To have more bargaining chips, they fill the budget with "goats," preposterous budget cuts that they know will never be passed but are useful cover for less obtrusive cuts. This time, the boys have over-egged their pie by calling for canceling benefits for discharged soldiers, a 50-percent hike in university fees, slashing child allowances and cuts in the education budget. They caused a backlash that made Prime Minister Ehud Olmert take the almost unprecedented step of ordering them back to their drawing boards a day before the budget was supposed to be presented at a press conference. Perhaps it's the rarified atmosphere they operate in, or maybe their critics have a point. But what's clear is that the Treasury boys totally misread the public and political climate in the last few weeks. There might be a demand for a dramatically larger defense budget to prepare the army for the next war, and a hefty bill still to pay for the last, but that doesn't mean that the people or their representatives are willing to pay the price out of their own and their children's pockets. This isn't a matter of economic ideology, it's much more one of human relations. They should have realized that this year, of all years, it's not enough for the budget to make fiscal sense, it also has to make sense to a lot of people who may not have degrees in business, but especially after this summer, feel they have a share in the country.

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