May 8, 2006
Finance Minister Abraham Hirchson's Speech to the Knesset Plenum – State Budget and Arrangements Law for 2006
Upon the establishment of the new government, and after five months in which the government has functioned without an approved budget, the proposed State Budget Law and the proposed Arrangements Law for 2006 are now before the Knesset for a first reading, as approved by the previous government in 2005 and by the present government. In accordance with the coalition agreements brought before the Knesset, several additional amendments will be made to this budget, which will be presented in the second and third readings.
Before I address the budget proposal, I would first like to say this: the Israeli economy is in good condition. Growth in 2005 reached 5.2 percent, continuing the positive trend of 2004. Employment is rising, leading to a drop in unemployment, to below 9 percent, along with an increase in the workforce participation rate. Industrial production has increased. Foreign investments reached an annual record level of over $6 billion. The government deficit is at a low point of less than 2 percent. The financial markets are growing at a satisfactory rate, and we are seeing expanding activity in the various economic sectors.
Israel’s economic strength is currently manifested in full force. I am deeply proud of the deal signed for the sale of Iscar, a landmark in the history of the Israeli economy. I would like to take this opportunity to express my appreciation to the Wertheimer family and to Mr. Buffet for carrying out this deal. This is a matter of national pride – a “blue and white” story that encapsulates the Zionist dream; an Israeli factory acquired by a giant international corporation. More than anything, this sale reflects confidence in the Israeli economy. I am full of hope that the deal will pave the road for similar transactions in the future. The Israeli government will do everything in its power to create a supportive economic infrastructure for such deals.
At the same time, the implementation of economic policy, however successful, has involved difficult steps. In my capacity as Chairman of the Finance Committee, I was involved in most of the reforms carried out by the Finance Ministers of the preceding government. I experienced firsthand the importance of these measures to the Israeli economy. I believed then, as I believe today, that these actions were inevitable under the circumstances, and constituted an essential condition for solidifying a stable, healthy, strong economy. However, these goals have now been achieved, and the economy has resumed a growth trajectory, allowing us to integrate the social plan delineated by Prime Minister Mr. Ehud Olmert into our work. The essence of the plan is the reduction of socio-economic inequalities in Israeli society.
My fellow Knesset members, we have the power to effect change. A different economy can be created: an economy that balances an advanced economic growth policy with a social safety net. In the policy presented to you within the 2006 budget proposal, and in the proposals that will be brought before you by the government in the coming years, we intend to maintain the correct balance between these goals.
First, as I said, we will maintain a clear, consistent economic policy: a policy that positions Israel at the forefront of the world’s growing, free, competitive economies. At the same time, furthering the policy formulated by the Prime Minister, we intend to create an economy that protects its citizens; an economy whose mission is the reduction of social inequalities. The problem of weak populations and minority groups must be handled comprehensively. We cannot be satisfied with localized solutions on one level or another. A comprehensive, specific, goal-focused infrastructure must be created in order to provide equal opportunities to all.
I believe that the implementation of an in-depth, thorough social program is not in contradiction to the economic principles familiar from the last few years. On the contrary: the rehabilitation of Israeli society, with reduced disparities and equal opportunities, will increase the involvement of all population groups in the economy, improve productivity, and contribute to continued healthy, long-lasting growth.
We will address the social issue as my mentor and teacher, the late Menachem Begin, addressed the issue of neighborhood rehabilitation. The 2006 State budget, with the amendments to be presented, is just the opening shot in this context. In the coming days, I plan to closely examine the plan for fighting poverty prepared at the Finance Ministry. Before the end of this year, I will present to the Knesset, with the approval of the Prime Minister and the government, a detailed plan for reducing social inequality and fighting social distress. We must not accept a situation in which poverty in Israel is surging and we are powerless to stop it. We shall work to eliminate poverty among populations in need of government support.
The principal objectives which I intend to set forth as the foundation of economic policy in the coming years are:
Encouraging growth
The forecast for 2006 currently stands at a growth rate of 3.9 percent, with a per-capita growth rate of 2.2 percent. However, I would like to emphasize that this is a cautious, responsible forecast, and it is possible that like last year, this year will again end with higher-than-expected growth rates. This forecast is not enough. I plan to lead a policy that will support the attainment of still higher growth and per-capita growth targets in the coming years.
Encouraging growth requires maintaining a responsible fiscal policy and increasing investments in human capital. In 2006, as in the following years, we will continue to limit the increase in government and public spending. Concurrently, we will consider measures aimed at restraining public expenditures, achieving economic behavior that avoids wastefulness, and lowering the national debt. We will continue to preserve the deficit target, so that the deficit does not exceed 3% of the budget in 2006, while working to gradually lower this target.
We are committed to in-depth, thorough care for human capital. A society without a worthy, value-driven educational system cannot sustain itself in the long term. The educational system, on every level, is the lifeblood of Israel’s society and economy, and we must invest the appropriate resources in order to improve it.
Another goal we have set is to reduce unemployment and increase the workforce participation rate.
We intend to remove the various barriers and help create jobs in the private sector. In recent years, we have seen changes in both of these areas. There has been an accelerated increase in the workforce participation rate, on the one hand, and a downward trend in the unemployment rate, on the other. As of the last quarter of 2005, unemployment stands at 8.8 percent. The forecast for 2006 indicates an average unemployment rate of 8.5 percent and a participation rate of more than 55.7 percent. This is a very significant change for Israeli society. It means that more and more people who want jobs are finding an occupation and a living. We will do everything in our power to create conditions that will foster an increase in the workforce participation rate and a reduction of unemployment; among other things, by improving professional training opportunities and by creating a more accommodating environment for families going to work, through assistance with work-supporting services.
We also plan to carry out structural reforms. We must continue to carry out structural reforms and privatizations, in order to encourage competition in the Israeli market; this will improve the circumstances of individual citizens by reducing the costs imposed on them as a result of the absence of competition in certain areas. Through these changes, we aim to improve efficiency in the economy and cultivate the competition necessary for economic health. All of these will bring about a continued decrease in prices in areas with high centralization, making companies more competitive and the economy more efficient: an economy in which products are supplied in the fastest time, at the best quality, and at the lowest price possible; an economy that will attract investments and increase the volume of buying and exporting, thereby expanding the number of jobs and the ability to emerge from poverty. We will also strive to carry out reforms that improve public service to citizens, regulation, and bureaucracy.
Global markets, foreign investors, and rating agencies continually examine the Israeli economy. In a global age, there is nothing to prevent investors from moving capital to investments abroad. Our role is to continue to maintain the current trend in which world markets are pleased with the progress and stability of the Israeli economy, so that they encourage investments in it and create economic drivers boosting growth and job creation.
Members of Knesset, in my humble opinion, there is no need to expand on the dramatic consequences of delaying approval of the budget. It is necessary to immediately approve the State Budget Law proposal and the Arrangements Law proposal for 2006, in order to minimize the damage caused by such delay. I will do everything in my power to ensure that the budget is approved rapidly, even before the deadline required by law. With regard to the State budget for 2007, I am working urgently to present it for government and Knesset approval as early as possible, in order to allow an appropriate in-depth, professional discussion. I see it as my professional duty to have this budget approved in Knesset by December 31, 2006.
My fellow Knesset members, what I have described above and what I intend to do during my term of service must be done together. Even if it is difficult, even if there are conflicts, we must talk to one another and reach agreements, as an essential, crucial condition for the success of the various economic processes which the government will need to carry out.
Madame Chairperson, Knesset members, I call upon the members of both the coalition and the opposition to show national responsibility by approving as rapidly as possible the State Budget Law proposal and the Arrangements Law proposal for 2006, which are presented for first reading, and the structural changes and reforms presented alongside them.