Thursday, June 22, 2006

[Israel] Hirchson promises to tackle poverty

from the Jerusalem Post

Finance Minister Avraham Hirchson told the Caesarea Forum Wednesday that his economic policy would be based on fiscal responsibility, increasing Israelis' disposable income, and reducing government intervention in the economy.

"I intend to judge each step, each reform and each structural transformation in light of these [three central] principles," he said.

Hirchson said that unidentified "parties" were attempting, through private investigators, to harm him and his family, so that he would put an end to market reforms.

The threats, carried out over the past few months, were "in response to the reforms of yesterday and with the aim of foiling the reforms that are on the threshold," he said, adding that he informed the attorney-general of the threats.

"This won't work... Despite the threats, I will continue to do what is right for the economy of Israel," he pledged.

Key fiscal goals for the period 2007-2011 set by Hirchson include:

• At least 3% growth in per capita GDP

• "Uncompromising" compliance with the 1.7% governement spending growth target

• Gradual reduction of public spending to 44% by 2011

• Cutting national debt to 80% of GDP by 2011

• Balancing the budget by 2009

"We won't succeed in meeting these goals if we base the economy's growth on increased public spending," Hirchson warned, adding that changing priorities required "dividing the budgetary cake differently," without exceeding the budget.

Fiscal restraint would also directly help increase the amount of disposable income available to individual citizens, boosting economic growth, Hirchson said.

"The less the government spends, the less [tax] it levies from its citizens, leaving more disposable income in their hands," leading to "more consumption, more commerce, more employment, more savings, and therefore more welfare," he said.

Hirchson also said he would have surplus tax revenues directly refunded to citizens, increase public services, and speed up reforms aimed at increasing competition and bringing down the prices of goods and services. Once goals to cut debt are met, further tax reforms would be pursued, Hirchson promised.

"We must reach competitive tax levels relative to the Western world - both in the level of marginal tax and in corporate taxes," he said.

Hirchson also promised more market reforms, "above all, structural change in the electrical market," which would be carried out in 2007.

"I am determined to ensure the country's residents an available and reliable supply of electricity at lower prices," he said, noting that "monopolies strangle growth, make living costs more expensive, and hurt primarily the weaker [social] strata."

Hirchson and Finance Ministry Director-General Yossi Bachar are currently working on a reform of the structure of supervision of the capital markets.

Government intervention should be used only when market failures are proven "beyond a doubt," he said.

Israel's quick rate of economic growth - more than 5% annually - is "powered by significant growth of private consumer [spending], and as such, is healthy and sustainable," Hirchson said, adding that the growth was not "ex nihilo," but the result of economic policy that the ministry would continue under his leadership.

"If we act responsibly, there is no reason for it not to continue."

The growth is also accompanied by a "clear and consistent trend" of dropping unemployment and increased participation in the work force, Hirchson stressed.

"More Israelis are looking for work and more Israelis are finding work," Hirchson said.

Hirchson said another of his ministry's key goals would be to stop the growth of poverty in Israel in the course of 2007, calling widening social disparities "the central threat to further growth and flourishing of the Israeli economy."

"The economy is growing, but unhealthy. ... There are some who claim that if we wait long enough, the growth will trickle down to 'other' strata of the population," he said, referring to former finance minister Binyamin Netanyahu's earlier speech.

"I think otherwise. We don't have the privilege to wait. We must take effective and immediate steps that will bring the fruits of growth to every home in Israel," Hirchson said, but stressed the need to maintain fiscal restraint.

During 2007, he said the ministry would implement several steps to improve the condition of Israel's less wealthy and make it easier for the unemployed to find jobs, such as expanding provision of day care facilities; lowering the cost of public transportation; increasing provision of professional training and strengthening enforcement of labor laws.

Workers in Israel - whether employed directly or as "independent" workers - must also be assured a pension for retirement, to help prevent their descent into poverty as retirees, Hirchson said.

Hebrew University Professor Momi Dahan, one of the researchers leading the conference, presented data Wednesday morning showing that the rate of poverty jumps from 5% before retirement to "more than 20%" after retirment.

Poverty among children would be tackled through efforts to provide equal opportunities and improve education, Hirschson said.

Meretz MK and member of the Knesset Finance Committee Haim Oron praised Hirchson on the apparent "change of direction" within the Finance Ministry toward social concerns, but suggested that the fiscal limits Hirchson placed would lead to a "large disparity between the goals and their execution."

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