Rollercoaster budget process

There are times when wisdom demands that politicians abandon economic dogma and embrace pragmatism.

By
May 9, 2009 23:33
3 minute read.
Rollercoaster budget process

Steinitz got milk 248 88. (photo credit: Ariel Jerozolimski)

 
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It's hard to know what to make of the way the proposed austerity budget has been handled. It seems as if Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz either completely miscalculated how their ideas would be received, or didn't know what was in the budget and were surprised by the reactions, or thought they could somehow get away with their draconian proposals. Or did they - as we suspect - intentionally include red herrings because that's what the machinations of Israel's budget process demands? Whatever the truth, we are not impressed. Each year's budget draft and its attendant omnibus "arrangements" bill generate protests. The current pandemonium is shriller than usual for several reasons. The weightiest is the fact that we are in the midst of a global economic crisis that in many respects resembles near-depression - one which hasn't spared Israel. Then there is the fact that, overwhelmed by the crisis and crippled by last winter's election season, the Olmert government failed to pass a 2009 budget. So the country is being run each month on a 12th of the 2008 budget. The resultant strain on resources is considerable. In response, Netanyahu submitted a two-year budget, geared also to administer more than temporary palliatives for what's left of 2009. The expanded budget framework, however, widens the scope for controversy. Meantime, the footprints of the government's free-enterprise worldview are unmistakable. Thus, while most everywhere in the world purse strings are being loosened and funds poured out to rehydrate cash-parched economies, here fiscal conservatism reigns supreme. There is unequivocal resistance to increased deficits. This may eventually serve our economy well when the inflationary specter reappears. Yet now, without a willingness to expand the deficit, Treasury strategists have sought cutbacks and revenue in the unlikeliest places. Ideologically loath to raise taxes even on the very wealthy, the government resorted to slashing exemptions and penny pinching which inevitably threatens the worst-off among the have-nots. Thus, its arrangements bill is full of exasperating proposals like the one which allows the blind and handicapped less tax-free income. This petty stricture won't affect many and its contribution to the state's finances is infinitesimal. Old-age benefits won't be cut, but the proposal is to freeze them. Again, very little will be accrued thereby. The same goes for trimming maternity benefits, deducting the costs of Tamiflu retrovirals from the anyway diminutive "drug basket," imposing VAT on fresh fruits and vegetables, shifting responsibility for accident victims from hospitals to health funds, reducing the fees of public defenders, collecting VAT from tourists for hotel accommodations and car rentals, and raising taxes on the use of company cell-phones. Some measures are less offensive - like curtailing early retirement for non-combat IDF officers, freezing public sector salaries, toughening unemployment benefit criteria and cracking down on VAT cheats. OF COURSE, nothing in the arrangements bill should be taken at face value. Political tradition decrees that it be stuffed with red herrings. Harsh edicts are incorporated with little intention of enacting them. When they are removed, the rest looks tolerable. We're guessing that the more outrageous proposals were never meant to be taken seriously. Indeed, no sooner were the details published then the premier retracted those that would blatantly harm the elderly, Holocaust survivors and the disabled. He's also rethinking charging hospital patients NIS 50 per day. And he may increase overall spending by 2.5 percent instead of 1.7%. The arrangements bill is cumbersome and multifaceted. Each clause is complicated on its own. Knesset members, for lack of time, gloss over intricacies and ramifications, frequently producing what party bosses and political lobbies press for, rather than what's sensible. While we've all focused on the most egregious proposed cutbacks, especially those that lend themselves to populist manipulation, the overriding public policy issue remains: Why are we tightening our economic belt when the rest of the world is doing the reverse - as is prescribed for periods of recession, as opposed to inflationary bouts? There are circumstances - all the more so in a globalized economy - when wisdom demands that politicians abandon economic dogma and embrace pragmatism. This is such a time.

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