Steinitz: Gov’t can’t fix all cost-of-living problems

Photo by: Reuters

By NADAV SHEMER
14/09/2011

Experts at business conference panel say behind impressive macro-economic data there are signs of deteriorating economy.


The government cannot satisfy all the demands of the ongoing cost-of-living protests, nor is solving the problem the only responsibility of the government, Finance Minister Yuval Steinitz said Wednesday. “From what I’ve heard from the protest leadership, nothing will satisfy them… In an amazing moment of candor, one of the leaders said, ‘No government could make the changes that we are calling for,’” he said. RELATED: Tent dwellers, municipality agree to dialog Protest leaders harness social media to maintain momentum Steinitz made his remarks in a prerecorded interview with business daily Globes that was broadcast at the opening of Economix.il, the Federation of Israeli Chamber of Commerce’s conference on strengthening the local business community. “I don’t think the role of a government is only to placate its citizens,” he said. “I have a lot of respect for demonstrations. Thousands going out [into the streets] within the democratic framework in a nonviolent manner – that’s a great thing. It is something that is part of our democratic fabric: freedom of speech. [But] alongside that, the responsibility for the Israeli economy rests on my shoulders.” Steinitz said his main role as finance minister is to safeguard the economy, industry, trade, high economic growth and low unemployment. If Israel fails to uphold these aims, he said, it would end up in a crisis similar to that which Greece, Spain and Italy are now dealing with. “I would say that the global economy is in the most dangerous, stormy and explosive situation since the State of Israel’s establishment,” Steinitz said. Repeating an analogy he made at another speech earlier in the week, he said: “We are on a very narrow bridge… but if G-d forbid we turn away from our anti-crisis policy, to break from the budget or to break from our policies, we could fall from that bridge and collapse.” Steinitz said the Trajtenberg Committee, which is expected to release its recommendations soon, could ease the burden on Israelis in two main areas: first, by reducing the cost of living through tax reform and regulation; and second, by expanding state support for families with small children. Four experts speaking on a panel immediately after Steinitz disagreed with his assessment that the economy was in a strong position, arguing that Israel was falling behind in the areas that count. Prof. Yaron Zelekha, head of the MBA program at Ono Academic College, criticized the panel’s title, “Why are national economies moving from success to failure and will something similar happen to Israel?” Reeling off statistics on Israel’s rate of poverty, which is one of the highest in the OECD, he said: “That’s a success? After 40 years of capitalist growth we have fallen in comparison to the United States. That’s not success; it’s failure. If we were a basketball team that for 40 years had been losing games against the West, it would be considered a complete failure and we would have replaced our coach.” Prof. Avi Ben-Bassat, of the Hebrew University of Jerusalem and a former Finance Ministry director-general, said economic growth figures had been distorted. “In the past decade growth has not been so impressive and has been created on the back of widening income inequality,” he said, adding: “There are major economic problems here, such as the governmental structure and the political system. Political fragmentation hurts the governmental structure, both at a local and national level.” Ben-Bassat said the defense budget must be reduced and taxes increased to expand public expenditure and address concerns raised by the ongoing cost-of-living protests. Israel has close to the lowest public expenditure in the developed world, about 42 percent of GDP, he said. Ben-Bassat said the government could begin to solve the problem of raising enough revenue by cutting “endless tax exemptions” and by raising the corporate tax, whose recent reductions were “overdone.” Prof. Avia Spivak, head of the alternative Rothschild team that will present its own solutions to socioeconomic problems raised by the protests, said Israel’s economic situation looked fine from the outside, but from the inside it was rotting. “What brought about our long-term economic prosperity were sectors of the economy, such as hi-tech, which functioned properly,” he said. “But hi-tech’s success didn’t trickle down to others in the economy.” “For years Israelis would travel to the United States and see the homeless in the streets and say it couldn’t happen here,” he added. “In Israel today there are homeless people. It’s happening right in front of our eyes.” The average real wage has not grown in a decade, Spivak said, and the state was not addressing issues like the deteriorating standards of education and health. “We had a good decade, one of prosperity,” he said. “But that period was wasted. We didn’t make the required changes, and today the finance minister comes and says that the situation is difficult and cannot be fixed. We must begin to make changes today. We can increase budget expenditure – doing so won’t endanger us.” Dr. Ya’acov Sheinin, CEO of Economic Models Israel, said the expenditure on defense was not nearly as high as it used to be and could not be used as an excuse not to spend money in other areas. Defense expenditure today constitutes just 5% of Israel’s gross product, he said, compared to 10% to 15% in decades past and compared to 4% to 4.5% in the US.

The government cannot satisfy all the demands of the ongoing cost-of-living protests, nor is solving the problem the only responsibility of the government, Finance Minister Yuval Steinitz said Wednesday.

“From what I’ve heard from the protest leadership, nothing will satisfy them… In an amazing moment of candor, one of the leaders said, ‘No government could make the changes that we are calling for,’” he said.

Steinitz made his remarks in a prerecorded interview with business daily Globes that was broadcast at the opening of Economix.il, the Federation of Israeli Chamber of Commerce’s conference on strengthening the local business community.

“I don’t think the role of a government is only to placate its citizens,” he said. “I have a lot of respect for demonstrations. Thousands going out [into the streets] within the democratic framework in a nonviolent manner – that’s a great thing. It is something that is part of our democratic fabric: freedom of speech. [But] alongside that, the responsibility for the Israeli economy rests on my shoulders.”

Steinitz said his main role as finance minister is to safeguard the economy, industry, trade, high economic growth and low unemployment. If Israel fails to uphold these aims, he said, it would end up in a crisis similar to that which Greece, Spain and Italy are now dealing with.

“I would say that the global economy is in the most dangerous, stormy and explosive situation since the State of Israel’s establishment,” Steinitz said.

Repeating an analogy he made at another speech earlier in the week, he said: “We are on a very narrow bridge… but if G-d forbid we turn away from our anti-crisis policy, to break from the budget or to break from our policies, we could fall from that bridge and collapse.”

Steinitz said the Trajtenberg Committee, which is expected to release its recommendations soon, could ease the burden on Israelis in two main areas: first, by reducing the cost of living through tax reform and regulation; and second, by expanding state support for families with small children.

Four experts speaking on a panel immediately after Steinitz disagreed with his assessment that the economy was in a strong position, arguing that Israel was falling behind in the areas that count.

Prof. Yaron Zelekha, head of the MBA program at Ono Academic College, criticized the panel’s title, “Why are national economies moving from success to failure and will something similar happen to Israel?” Reeling off statistics on Israel’s rate of poverty, which is one of the highest in the OECD, he said: “That’s a success? After 40 years of capitalist growth we have fallen in comparison to the United States. That’s not success; it’s failure. If we were a basketball team that for 40 years had been losing games against the West, it would be considered a complete failure and we would have replaced our coach.”

Prof. Avi Ben-Bassat, of the Hebrew University of Jerusalem and a former Finance Ministry director-general, said economic growth figures had been distorted.

“In the past decade growth has not been so impressive and has been created on the back of widening income inequality,” he said, adding: “There are major economic problems here, such as the governmental structure and the political system. Political fragmentation hurts the governmental structure, both at a local and national level.”

Ben-Bassat said the defense budget must be reduced and taxes increased to expand public expenditure and address concerns raised by the ongoing cost-of-living protests. Israel has close to the lowest public expenditure in the developed world, about 42 percent of GDP, he said.

Ben-Bassat said the government could begin to solve the problem of raising enough revenue by cutting “endless tax exemptions” and by raising the corporate tax, whose recent reductions were “overdone.”

Prof. Avia Spivak, head of the alternative Rothschild team that will present its own solutions to socioeconomic problems raised by the protests, said Israel’s economic situation looked fine from the outside, but from the inside it was rotting.

“What brought about our long-term economic prosperity were sectors of the economy, such as hi-tech, which functioned properly,” he said. “But hi-tech’s success didn’t trickle down to others in the economy.”

“For years Israelis would travel to the United States and see the homeless in the streets and say it couldn’t happen here,” he added. “In Israel today there are homeless people. It’s happening right in front of our eyes.”

The average real wage has not grown in a decade, Spivak said, and the state was not addressing issues like the deteriorating standards of education and health.

“We had a good decade, one of prosperity,” he said. “But that period was wasted. We didn’t make the required changes, and today the finance minister comes and says that the situation is difficult and cannot be fixed. We must begin to make changes today. We can increase budget expenditure – doing so won’t endanger us.”

Dr. Ya’acov Sheinin, CEO of Economic Models Israel, said the expenditure on defense was not nearly as high as it used to be and could not be used as an excuse not to spend money in other areas. Defense expenditure today constitutes just 5% of Israel’s gross product, he said, compared to 10% to 15% in decades past and compared to 4% to 4.5% in the US.