Prime Minister Benjamin Netanyahu does not dare to even think about the 2013 state budget. Budget discussions, which should be at their height at this time, are not being held. No meetings have been scheduled, not with Ministry of Finance officials, or with Bank of Israel officials, or with National Economic Council officials. The Prime Minister's Office is simply not scheduling meetings.
Netanyahu knows he has no choice. The country is burning and measures are urgently needed. Economic uncertainty is pervasive and political uncertainty - will there or won't there be elections - is also pervasive, as well as regulatory uncertainty (the Concentration Committee, the Trajtenberg Committee, the Zaken Committee, the Milk Committee, new insurance regulations). There is uncertainty about the global economy, with a recession in Europe, and a slowdown, huge deficit and pending elections in the US, along with a sharp drop in growth in emerging markets beginning with China. There is domestic fiscal uncertainty about the budget, the deficit, and cuts.
On top of all this is the fact that the present government has been irresponsible, disbursing money and assuming more than NIS 15 billion in unfunded commitments (according the Ministry of Finance Budget Department), breaking the budget framework, which Netanyahu and Minister of Finance Yuval Steinitz have said was sacred in their speeches.
According to updated figures that the Budget Department has handed to Netanyahu and his aides, the 2013 budget is liable to balloon to a frightening 5.8% of GDP unless something is done to reduce it, compared with the newly planned 3% of GDP - a level that Governor of the Bank of Israel Prof. Stanley Fischer strongly opposes.
In ordinary times, July is when discussions on the budget framework, riders, the annual economic arrangements law, and structural reforms should be at their height. This process usually takes at least four months. Netanyahu, who has passed many state budgets in his life, knows exactly what the timetable is. He knows that, after deducting the holidays, weekends, and vacations, he has ten weeks left. Nonetheless, the lights are still off in his office, and the appointments book is empty.
But the prime minister, the uber-minister for economic strategy, with the help of his finance minister, who continues to babble about marginal matters, choose to run away. They are avoiding drawing up a budget, which is going to be the hardest budget in a decade; a budget that will be full of tax hikes and budget cuts on anything and everything, including welfare payments, defense, salaries, and social services.
This is because Netanyahu does not want to go into elections under a black economic flag, fearing failure in advance. He is postponing discussions on the budget until he knows where he and is government are headed. Moreover, under the current circumstances with the great uncertainty about the date of the next elections, there is no chance that the opposition will cooperate, and no chance that his veteran coalition partners will allow him to pass the budget. There is no chance that Yisrael Beitenu chairman and Minister of Foreign Affairs Avigdor Liberman and Shas chairman and Minister of Interior Eli Yishai will agree to go to elections, whenever they are held, after personally approving a hard budget. It would be bad for them politically too.
That is why Netanyahu chooses evasion. The most economic of Israel's prime ministers knowingly chooses to jeopardize the economic future of the country in exchange for his political future. Netanyahu is waiting to personally decide when the next elections will be held. He does not want to go to the nation because of economics or because the budget has not been passed. He wants to go to the nation over the draft of the haredim (ultra-orthodox), which is a matter of principle and respectable enough to bring down the sitting government.
If that happens, Netanyahu will call elections, which will render the budget unnecessary, along with his duty to provide a state budget on time at the end of December. For Netanyahu, a government that will go home in a few months, late this year or early next year, does not need a budget, or even a budget proposal. It does even need a draft budget, which will obviously be a harsh one, and which would be the basis for the election campaigns by Labor Party chairwoman MK Shelly Yachimovich, Yair Lapid, Liberman, and Yishai.
Losing control
Meanwhile, the economy looks bad and is deteriorating fast, creating the feeling that we are losing control. It should be noted that the Ministry of Finance has its own problems in the functioning of its top officials, which caused it to realize much too late the economic situation. At Steinitz's instigation, top ministry officials, especially director general Doron Cohen, opted to wait for next month's figures. Every month they waited for the next month's figures, until the consequences hit them in the face.
GDP growth in the first quarter of 2012 was an annualized 2.7%, not the 3% they expected. It is quite clear that 3% growth a year is a fantasy. Exports are plummeting - the latest report by the Central Bureau of Statistics states that exports were 12% lower in June than in May. The quarterly figures are worse; revised figures show a 2.5% drop in exports in the first quarter, not the incorrect and misleading figure of 14% growth published a month ago.
The government deficit was NIS 10 billion in the first half of 2012, almost double the figure for the first half of 2011. The shortfall in tax revenues is already NIS 3 billion from the budget target. And it should be remembered that there was a tax surplus of nearly NIS 4 billion in January, from early payments due to expected changes in the capital gains tax.
For the umpteenth time, the monthly Consumer Price Index (CPI) was unexpected. The CPI for June fell by 0.3%, compared with forecasts of a rise of 0.1%. The figure clearly shows a general fall in prices, due to weak domestic demand. In other words, the psychology of recession has already arrived.
There are two other figures: unemployment is rising, albeit slowly, but the unemployment rate is an economic variable that lags the business cycle; and the current accounts, which states the country's foreign currency accounts, has undergone an unprecedented U-turn - and the international rating companies increasingly look at this item. Israel had a current accounts surplus of $1 billion in the first quarter of 2011; a year later, it had a current accounts deficit of over $1 billion. Money is leaving.
One more, and equally worrying, figure should be added: the daily turnover on the Tel Aviv Stock Exchange (TASE) hit a low point of just NIS 350 million last Sunday.
Urgent and critical
The problem is that hovering over all of this, and the urgent and critical need to take action, and allow the economy to survive the coming blow, personal and partisan calculations of Netanyahu and the Likud are dominating. The country needs a budget, it must sort out the severe deficit, which means that the public will be hurt. But there is no choice.
Moreover, it is clear that Moshe Silman's self-immolation at the protest rally last Saturday night, which has led to attempted copycats so far this week - and it's still only Tuesday - more attempted public self-immolations that further enflame the situation - are only hastening Netanyahu's flight from decision-making.
Published by Globes [online], Israel business news - www.globes-online.com - on July 17, 2012
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