August 8, 2004

The name of the game is to foster economic growth rather than treat the deficit. In modern and democratic nations such as Israel, there is a constant interplay between foreign policy and security on one hand, and the economy and social welfare on the other. The national strength of any state comes from the amalgamation of the two, and Israel is no exception.

The protection of Israel’s national strength was my primary motivation when, in last week’s cabinet meeting, I presented an alternative proposal to the economic plan of the Treasury for 2005.

My working assumption is that the nurturing of a political process toward normalization is a prerequisite for viable growth and an improved standard of living for all Israel’s citizens. Those who believe we can grow economically without progressing on the diplomatic track are mistaken.

In other words, promoting economic growth with one hand while holding back the disengagement plan with the other, or slowing down the construction of the separation fence, is just a non-starter.

Nurturing a diplomatic track encourages stability, creates trust among foreign and local investors, encourages individual consumption, and bolsters a sense of personal and national security. It also undermines anti-Israeli activity abroad – from the International Court of Justice in The Hague and the United Nations General Assembly in New York, to the “quiet” boycott of Israel by Brussels and Scandinavia. I vehemently believe that in today’s Israel, there can be no viable rehabilitation of the economy without a diplomatic process.

Consequently, I proposed that the government focus on four principal goals:

** Commit to the diplomatic process, which will contribute significantly to economic growth

** Nurture Israel’s economic competitiveness in the global economy

** Narrow the social gaps

** Grant budgetary priority to Jerusalem, the Galilee, and the Negev.

To improve Israel’s competitiveness, we must preserve those things that give us a competitive edge, as we have in the past with national projects such as those that encouraged universities to train engineers, the technological incubator project, and the establishment of Yozmah, the infrastructure for Israel’s flourishing venture capital industry.

In the future, we must be especially vigilant about creating a connection between the output of the education systems and their adaptation to the needs of the global economy. We need to encourage investment in technology and nanotechnology and provide incentives for industrial research and development.

We need to encourage foreign investment in Israel which, in addition to the infusion of capital, puts global markets at the disposal of Israel’s economy. And, of course, we need to encourage production, export, and innovation in the business sector.

The national budget must serve as a bridge to close social gaps rather than create social rifts. The time has come for Israel to shore our national strength by enhancing social solidarity, which would naturally contribute to economic growth.

This is why I believe that it is the state’s duty to create jobs that will allow every citizen to make an honorable living through the provision of equal opportunity for decent work.

This means removing obstacles that block the creation of new employment and giving priority to those sectors in the country that are the most severely affected by unemployment – immigrants, minority groups, and haredim. It is not enough to talk about change; the government needs to determine practical employment goals alongside its deficit targets.

I propose setting an unemployment goal of 10% for 2005, while at the same time increasing by 10% the overall participation of the population in the workforce, leading to a 7% unemployment goal for 2010.

To retain the Jewish majority in Jerusalem, the Galilee, and the Negev, the government should immediately adopt a five-year National Emergency Plan that will include result-oriented, multi-agency programs to deal with education in schools and universities, development and infrastructure, housing and population, investments in industry and employment, health and welfare services, as well as strengthening local governments.

Sadly, the budget that the Finance Ministry has submitted to the government does not offer the prospect of achieving even one of the four goals outlined above.

On the contrary, adopting the budget in its current form might even undermine several national goals, slow down the economy, and increase unemployment. As if ruled by an automatic reflex, the Treasury has proposed, for the third year, to cut the budget by $1.5 – 2 billion, in addition to the $4.5 billion that has already been cut in the past two years.

These cuts are deep, painful, and seriously damage the social fabric of the country – and they are not even necessary. The renewed economic growth we have been experiencing in the past year, after almost three years of deep recession, is fragile, short-lived, and still not viable. It is almost entirely export-oriented and remains largely dependent on the global economy. Only a small part results from a rise in individual consumption, due to the improvement in our political-security situation.

The macroeconomic challenge is to identify those pivotal points that demand a change in fiscal policy – and I believe that the year 2005 is one of these points. The name of the game is to foster economic growth rather than treat the deficit, which was already well taken care of in 2004.

The budget needs to be prepared with greater transparency regarding both estimated revenues and spending. At the same time, it should take full advantage of the budget allowances that are available and include a transition to a two-year budget for 2005-6. This will allow the government to deliver growth, competitiveness, and social solidarity, as well as better engagement of the periphery to the center.

I have only one vote in the cabinet; but I will fight, using all the tools at my disposal, to have the goals I’ve outlined here find proper expression in Israel’s national budget for 2005.

(Reprinted from The Jerusalem Post)

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Jason Harris

Jason Harris

Executive Director

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