Growth could pay for social spending

If the coalition is limited to Labor and the Pensioners, then spending would be increased to such items as health and health insurance, pension allowances and single-parent support.

money good 88 (photo credit:)
money good 88
(photo credit: )
Fast economic growth, expected to continue in 2006, and increased tax revenue would create a budget surplus, thereby allowing Kadima to commit to more social spending and build a coalition of center-left parties without compromising fiscal restraint. "I assume that there will be a clear statement that the limit of budgetary deficit growth will not be exceeded," said Israel Institute for Economic Social Research chairman Roby Nathanson. Given projections of roughly 4 percent to 4.5% expansion of the gross domestic product and 1.8% population growth in 2006, boosted tax revenues would create a surplus of about NIS 3.5 billion to NIS 4b., he said. The extra money would allow Kadima to promise potential coalition partners, such as Labor, the Pensioners and Shas, that the government would fight poverty and unemployment and improve the lot of retirees without exceeding the budget, Nathanson predicted, adding that, "Anything beyond that could certainly cause economic instability and a more difficult situation." Raising the minimum wage to $1,000 per month - as the Labor Party promised during the electoral campaign - "does not appear to be realistic, this has no chance of being expressed all at once," he said. Nathanson added that there there was almost "no doubt" the 2006 budget would have to be changed because it was still based on the economic policy of past years. David Nachmias, professor of governance and public policy at the Interdisciplinary Center in Herzliya said it was too early to estimate the fiscal cost of building a center-left coalition, which could vary widely depending on the party courted. If the coalition is limited to Labor and the Pensioners, then spending would be increased to such items as health and health insurance, pension allowances and single-parent support. Including United Torah Judaism would boost transfer payments earmarked for Haredi needy, yeshiva students and large families, he said. Nathanson noted that the Arab parties also would support increased social spending. "The problem is raising minimum wage, which Peretz promised," Nachmias said. Funding for the list of subsidized items in the "health basket" could be raised by 2% or NIS 460 million per year, Nathanson said. Nachmias noted that earlier Health Ministry requests had put the necessary raise to the health basket at NIS 700m., "but now the story is completely different" since Labor has promised more, and the Pensioners and Shas are requesting much more, so that amount could be multiplied "several times over." The Pensioners' specific demands were still unclear, however. A Labor spokesperson said the party would most likely assemble a negotiating team and formulate specific demands - which would "certainly" include raising the minimum wage to $1,000 and mandatory pension - by Thursday or Friday. Labor's campaign platform sought to spread NIS 57.9b. in added spending on social and economic development over four years, including NIS 7b. to help cover the cost of raising minimum wage for employers unable to foot the bill. Funding for the program would be provided through increased economic growth and cutting the defense budget and spending in the West Bank, the Labor spokesperson said. Nachmias predicted that some Labor leaders, as well as the Finance Ministry's Budgetary Department, would likely help prevent "radical changes" to economic and fiscal policy. Prime Minister Ehud Olmert would also seek to safeguard economic growth and keep increases in public spending to a minimum in coalition talks. "He won't give everything all at once," Nachmias said.