Dream on, Steinitz

Our economy will be among the last to recover from this terrible economic crisis.

Yuval Steinitz  88 248 (photo credit: Ariel Jerozolimski)
Yuval Steinitz 88 248
(photo credit: Ariel Jerozolimski)
In front of an opposition-free Knesset session, our new finance minister, Yuval Steinitz, sounded more confident and haughtier than ever. Introducing the new state budget to a half-empty house, he repeated his cocky statements that this budget would ensure the Israeli economy would be "the first to overcome the crisis" and would eventually emerge stronger than ever. As a matter of fact, the budget Steinitz is promoting in such a passion over every available microphone is more likely to put our economy in the worst possible position, crippling its ability to compete in the global markets once this storm is over. Why? Because instead of supporting the most important factor, the labor market, the 2009-2010 budget is a regression toward higher employment costs. Not only must firms bear a 0.4 percent increase in the absurd "employer tax," which fines businesses for actually employing people, this budget includes commitments to force businesses to negotiate collective bargaining agreements with workers. This Bolshevik idea was one of the concessions Steinitz and his boss, Prime Minister Binyamin Netanyahu, had to make to get the approval of our acting prime minister, Histadrut chairman Ofer Eini, for the budget. Indeed, a budget created and formed by a unionist like Eini has no chance of encouraging growth or employment. Moreover, when dealing directly with unemployment, the budget again misses the point. Instead of indiscriminately increasing unemployment benefits, the Treasury should have insisted on a cleverer way that could actually contribute to a more efficient labor market. Take as an example the many thousands of software engineers who lost their jobs in recent months. These people can make a terrific contribution to our education system, should they become teachers. The problem is, of course, the wide gap between the salary they used to get in the hi-tech sector and the one they can expect to get as teachers. This is exactly where the budget should intervene by exempting them from taxes for a certain period of time, while reducing their unemployment benefits. Another point of failure is the attitude toward the export sector. This traditional growth engine is suffering the most from the recession in the US and EU markets. Even if you believe the free fall in these economies has stopped for now, we are still very far from renewed growth; not to mention the new trend of "Buy American" protectionism and pro-domestic policies. Here, Steinitz doesn't even bother to offer a cure, perhaps in the form of encouraging exporters to seek new markets. It seems the Finance Ministry is relying solely on the central bank to artificially depress the shekel in the foreign-exchange market - a very dangerous path that could blow up in everyone's faces once the Bank of Israel reaches the point where it can no longer buy dollars. And there's more. Steinitz and Netanyahu abandoned their own basic beliefs about non-Keynesianism, anti-intervention and smaller government, and turned to a policy of raising taxes, increasing public expenditures and raising allowances. By returning to the corrupt way of increased child allowances, which benefits the anti-Zionist sectors in our country, and by pouring more money into the bottomless pit of military expenditure, you get inflation, not growth. And on top of all that comes the blow of increasing the VAT rate and issuing this antiprogressive tax on fruits and vegetables. So many words have been written about the negative influence of the VAT on private consumption and about the disproportionate impact on the weakest segments of the society. But it is so important, we feel a need to say it once again: VAT is an anti-poor tax. VAT on fruits and vegetables is super-anti-poor. As we can see, the budget is a growth-killer in almost every possible way. Steinitz has to understand that his pathetic performances in the television studios, repeating the same mantras of "brake and push," have little to do with reality. Sadly enough, the chance that our crippling opposition will do something to improve the deficiencies in the biannual budget is zero. So without joy, we can predict that our economy will be among the last to recover from this terrible economic crisis - and not among the first, like our delusional finance minister believes.