Focused. Steinitz
Photo: Dudi Vaaknin
No more cockfights. With Fischer
Photo: Gil Yohanan
Steinitz: Unemployment worse than we thought
Finance minister tells Calcalist financial plan 'tailor made' for local market, applying crisis models used by US, Europe not necessarily right thing for Israel
Finance Minister Yuval Steinitz admitted recently that unemployment figures were "worst than anticipated and a real cause for concern."
Speaking with Calcalist over the weekend, Steinitz added that "the data reflects what should be our top priority – curbing unemployment."
What does the Treasury plan to do?
"The financial plan is meant to fight unemployment is several ways: Indirectly – by putting up NIS 26 billion ($6.63 billion) as collateral for a wide scale solution to the credit crunch; and directly – by reducing foreign labor and encouraging unemployed Israelis to take over jobs usually held by foreign workers. There are over 400,000 foreign workers in Israel – that is an astounding figure considering our size."
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This is not the first effort ever made to curb foreign labor.
"It's a priority, and in order to implement it we have begun increasing enforcement and bolstering the Immigration Police. We intend to tighten border inspections and gradually reduce the number of work permits given to foreign workers.
"The important thing is to do something about the 320,000 illegal workers living in Israel. We are currently formulating draconian penalties, including costly fines and even shutdown orders, in order to create real deterrence with employers."
Do you believe Israelis would be willing to have these jobs?
"Unequivocally, yes. Foreign workers do not compete with Israelis in the law, medical or academic professions. They compete in the service industry, with janitors and hotel chambermaids, by undercutting pay. When these jobs are available to Israelis again, their wages will be better as well.
"The Israeli market produces enough jobs; the problem is these jobs are not manned by Israelis. True, they're not sexy jobs, but we have to reduce the number of foreign workers."
Size matters
The need to protect businesses and exporters and the need to fight unemployment are not mutually excluded. "We are giving the banks NIS 12 billion ($3 billion) in government-funded guarantees so that they can extend lines of credit more easily," says Steinitz.
"The crisis is a global one and the OCED Organization for Economic Co-operation and Development) predicts things will start getting better from mid 2010 and on. If we can maintain the Israeli exporters' competitive edge, when international trade picks up again, we'll be there."
Are you concerned with the fluctuations in dollar rates?
"Of course. The governor (Governor of the Bank of Israel Stanley Fischer) and I would both like to see the dollar trade at NIS 4 or NIS 4.5 at this time. We won’t go back to a fixed dollar rate. The governor is doing all that can be done by buying up currency.
"What bothers me the most is the slump in international trade," he continues. "We are an exports-inclined market, but not one of consumer goods – we export hardware and software, so we are dependent on demand."
How does that work into increasing the State budget ?
"We chose a delimited increase. The US, Japan and some of the European countries declared a 10% increase – we chose a 1.3% increase a year, all in favor of the Chief Scientist's Office, research and development, capital investments, infrastructure, transportation, tourism – all in order to cope with the crisis."
What about the increase in child benefits?
"There is a misconception there… that is meant to aid, not encourage natality, just like the new guidelines for unemployment eligibility. All of the steps taken at this time are emergency measures."
When in comes to increasing the budget, the models used by the US and Europe cannot be applied domestically: "In this case, (a nation's) size does matter. The Israeli marker exports predominately high-tech components, defense equipment, diamonds and pharmaceuticals, so we cant make up for a decline in exports by increasing domestic consumption. It just won't work."
Not only would overextending the State budget fail to make up for the recession, he warns, "It could distort the market's makeup in the long run. We would be driving ourselves back into the 1960s. The current financial plan is tailor made for the Israeli market."
How do you plan to pay for an NIS 80 billion deficit in just two years?
"The deficit is smaller than that. The decrease in State revenue is likely less than NIS 80 billion. We'll have to raise the funds." The move, he adds, does not necessarily call for Israel asking the US for larger collaterals. "We have a good credit rating internationally. We are currently considering raising capital."
Tailor-made plan
Is there a concern that Israel's credit rating may be demoted?"I don’t think there's any reason for that to happen. We are dealing with the crisis very well, and from what I've been hearing, our financial plan and the fact that we presented a very clear deficit goal, are highly regarded."
You said that unless the suggestion to add a VAT charge to produce sales is approved, you were going to pull the budget bill.
"Things said behind close doors never find the right way out… I will say this much: The budget proposal is a good one, but it cannot sustain blows amounting to hundreds of millions of shekels. It can't sustain a NIS 1.8 billion ($460 million) blow, which is the extent of the VAT on produce. This is a taxation irregularity that should have been dealt with a long time ago and it will not injure the low socioeconomic stations."
Prime Minister Benjamin Netanyahu promised Fischer, at the time, that the Bank of Israel would oversee the stock market.
"No, it stays with the Treasury. I know of no plans to the contrary." As for the relationships between his office and the Bank, "I met with Fischer on my first day in office and we agreed that the cockfights are over," said Steinitz.
Putting a government together is the business of real politics, he said when asked about the fact that the current government has created over 100 new positions. "Every government yields to political agreement with some sort of a financial aspect."
Golan Hazani and Amnon Atad contributed to this report
