The higher the expectations, the greater the chance of disappointment, and the disappointment here is great. On September 5, the current Finance Minister, Avraham Hirchson, announced that the 2007 budget would follow the lines of the last; he would not allow any departure from foreordained limits on budgetary growth or the deficit. The Budget Law, adopted by the government in mid-September, is based on the principles that have guided Israel for several years, namely, shrinkage of the public sector and expenditures, with privatization of public services.
The budget, and especially the accompanying Economic Arrangements Law*, completely ignore the traumatic events of the summer. Despite the fact that the most recent elections reduced Netanyahu’s Likud to twelve seats, the budget gives the impression that this Knight of Thatcherism still runs the show.
Sever Plotzker, senior economics correspondent for the Hebrew daily Yediot Aharonot, has called this budget proposal “emphatically right-wing.” He continues: “This is a courageous, reformist budget, a budget of good economics with its eyes on growth. At the same time, however, from a conceptual and social standpoint, it is lopsided and unjust. According to the Hirchson budget, the entire cost of the war will be borne in the coming year by the recipients of social payments, the citizens who need welfare services, and the bottom rung of wage earners” (Ynet September 6).
Knesset member Shelly Yacimovich of Labor has attacked the budget, calling the Labor ministers who support it “utter collaborators with the approach of Binyamin Netanyahu” (Haaretz Weekend Supplement, September 22). “The draft of the Arrangements Law,” she said, “together with the budget approved by the government last week, is a militant right-wing paper. Every line expresses an extreme right-wing economic approach, whose entire aim is to privatize the state. I regard it as post-Zionist.”
Olmert and his party, Kadima, make no attempt to hide their allegiance to an economics that views growth as the be-all and end-all—the weak be damned. In contrast, the Labor Party under Peretz only a year ago proclaimed an all-out war against the anti-social agenda of the previous Sharon government. It was over this issue that Peretz, newly elected as Labor head, pulled his party out of the government and sparked new elections, emblazoning the social issues on his banner.
Pleasing the financial markets
For all his talk, Peretz has never distinguished himself as an opponent of neo-liberalism. (See “Amir Peretz: Capitalism in Pink,” Challenge 95.). Under him, however, the Labor Party went beyond the most pessimistic predictions in approving the 2007 budget.
Labor’s betrayal of its principles should be viewed against the background of the economy’s assimilation to the global market. The economic elite has adopted the so-called “Washington Consensus,” as symbolized above all by Stanley Fischer. Parachuting in from the International Monetary Fund and City Group, Fischer is Israel’s top foreign worker, imported by the Sharon government in 2005 to head the Bank of Israel. His appointment strengthened Israel’s international standing. It showed that the country’s economic team would meet the requirements of global capital markets.
In accordance with neo-liberal theory, creating jobs is not a policy goal. Rather, everything should be subject to the aim of lowering expenditures and reducing inflation. A “lean” budget is an end in itself.
Any lay economist can understand that by balancing income and expenditures, a government provides a basis for economic stability. But a rigidly orthodox ceiling on annual budgetary increases has nothing to do with balancing income and expenditures.
The fact is, Israel must reckon with a 1% annual ceiling on expenditures. That was a condition under which, in 2003, Washington provided it with $10 billion in loan guarantees. These helped it overcome two years of negative growth occasioned by the second Intifada, but they tightened the bond with the US economy.
The war in Lebanon was expensive. Dr. Yossi Bachar, the Director General of the Finance Ministry, went to Washington in search of help. Bachar worked out the new budget’s main points with the US Treasury, winning its agreement to a one-time hike in the ceiling on expenditures from 1% to 3.3% (Haaretz September 6). Only then was the budget presented to Israel’s government.
Cutbacks in services were not the only alternative. One step that could have been taken was postponement of a tax reform legislated in 2006. Its delay would have brought in 28 billion shekels between 2007 and 2010. (This is about $6.6 billion, a large chunk of the $69 billion in budget expenditures proposed for 2007.) The government would not put off the reform, however, because it is a vital component of the new sexy look that Israel wants to project in global financial markets. According to a report of the Senat Project (Israeli Institute for Economic and Social Research),1 the loss of revenues resulting from tax reform will cause “a reduction of per capita expenditures on health, education and welfare. Reductions in these spheres are expected to exert a strong negative influence on low income individuals.”
The government also rejected a proposal to raise the Value Added Tax from 15.5% to its previous level of 16.5%. This would have brought in 3.5 billion shekels. According to Plotzker, when the government votes on the budget, it never sees a full, transparent picture of income and expenditures, rather only the expenditures, which are presented as a fait accompli. (“The Lie of the Framework, the Illusion of the Deficit,” Ynet, September 8).
So much, then, for the hope that the wartime scenes of the helpless poor would induce more spending on social issues! For Israel’s ruling elite, the most important thing during and after the war has been to demonstrate business as usual. Strict coordination with the US Treasury—that is the key. The bell of Wall Street rings. A social agenda will have to wait.