Olmert, Fischer call for urgent resolution of pension dispute

"The biggest danger in the preparation of a pension safety-net plan is that everyone will rush to be generous and expand it," Fischer said.

Stanley Fischer 88 248 (photo credit: Ariel Jerozolimski)
Stanley Fischer 88 248
(photo credit: Ariel Jerozolimski)
Prime Minister Ehud Olmert and Bank of Israel Governor Stanley Fischer on Monday called for task forces from the Finance Ministry, the Prime Minister's Office and the central bank to come to a swift agreement for the immediate adoption of a safety net for pension savings. Following a meeting with Fischer, Olmert said he hoped the teams would hammer out an agreement in talks scheduled for Monday night. But Finance Ministry sources were less optimistic. "The issues involved in the formulation of the details of the plan for a pension safety net are very complex," a Treasury official said. "Expert teams of the three sides are meeting... but at this point we don't see a breakthrough during the night." Olmert said he agreed with Fischer that a pension safety plan must be presented immediately and that any delay would leave it wide of the mark. "The government's pension safety-net plan addresses the needs of a wider population, but its cost is similar to that of the Finance Ministry's plan," Fischer said at a press conference in Jerusalem on Monday. "I believe that the differences between the two sides regarding the safety net are not vast and can be resolved shortly. "The Bank of Israel is supportive of a safety plan for pension savings, provided that its cost is relatively low and that it will be limited to those who are nearing retirement age and have no other sources of income than pension funds to support themselves." One of the major differences between the two proposals is the age factor: The Treasury's pension safety plan is expected to cover only a few tens of thousands of savers, as it would apply only to pension savers aged 60 and older who earn less than twice the minimum wage, or about NIS 7,700 a month. The safety net will not be retroactive but will guarantee savings only from the date on which the Knesset approves it. The proposal put forward by Olmert is to broaden the safety net by lowering the age to 55 and older. "The biggest danger in the preparation of a pension safety-net plan is that everyone will rush to be generous and expand it," Fischer said. "This will increase the cost, and we and future generations will pay a heavy price." "On the one hand, not having a passed state budget for 2009 puts a limit on the Finance Ministry's ability to implement stimulus plans, and on the other hand we don't have the flexibility to increase the budget deficit like other countries," he said. "We are not the US; we don't have the ability to increase our deficit to up to 7.5 percent of GDP as is expected in the US next year." Fischer warned that the cost of the Treasury's economic stimulus plans must not expand the budget deficit to more than 3% of GDP, or NIS 21 billion. In the budget draft 2009 prepared several months ago, the deficit target was set at 1% of GDP. "We need to understand that a much larger deficit will lead to higher interest rates and higher financing costs, which in turn will greatly damage economic growth," Fischer said. "We need to think not only about the current crisis but the future of this economy." Commenting on the political tensions and interests overshadowing the economic rescue debate, Fischer reiterated his warning about making generous promises that could endanger the future of the Israeli economy. "We all know that pre-election times are exceptional times, especially now," he said. "It is therefore of utmost importance that all of us, and not just the economists, continue to take immediate and responsible measures that take account of the state of the economy and the challenges it faces." Manufacturers Association of Israel president Shraga Brosh warned that 47% of factories and businesses were already suffering from credit difficulties and 25% of exporters were reporting a 20% decline in sales. "We are already feeling the pains of a recession and no one is acting," he said at an emergency meeting of economic and business organizations in Tel Aviv on Monday. "For weeks we and the Histadrut have been trying to set up a meeting with Finance Minister Ronnie Bar-On in an effort to find the best solutions, in particular for small- and medium-sized businesses to cope with the economic crisis, but without success. We will not watch small- and medium-sized companies collapse, and if we need to, we will join the Histadrut's threat of a general strike in the economy."