We can stabilize the economy

Principles of the Likud position on the economy:

1. The Likud advocates a free economy with social awareness.

2. A global economy and competitive market demand budgetary discipline, a cutback in taxes, an efficiently-run capital market, and growth in the private sector.

3. The government must seek to create economic opportunities for the entire populace and to make provisions for those who are unable to avail themselves of these opportunities.

4. Everyone who is able to should go to work and find employment so that the government can save its resources for those who are truly unable to work.

5. The best way to create economic opportunities for all is by investing in education and national infrastructures.

While others offer words and more words, the Likud Party headed by Benjamin Netanyahu has a successful program of economic reform in its resume. No less important, at a time when waves of uncertainty are buffeting the global economy, the Likud has proven that it could, most successfully, navigate Israel's economy between the breakers to a safe shore. Moreover the bold measures adopted by the Likud when in office in dealing with the last crisis has made the Israeli economy stronger and more resilient to the crisis that besets it today.

In 2003, after the elections which doubled the Likud's electoral power, the government found itself in the throes of crisis. The State of Israel underwent two years of recession and the unemployment rate soared to 11%. The national debt swelled, doubling itself to more than 100% of the GNP, the budget deficit reached 6% of the GNP, and interest rates skyrocketed. Foreign investment in Israel stopped, and the Bank of Israel warned that a crash was imminent.

Most of the politicians and experts claimed that there was almost nothing the government could do to handle the crisis except to raise taxes or alternately, to adopt programs whose implementation would compel the government to spend more of the money that it didn't have. The Finance Minister at that time, Benjamin Netanyahu, dismissed those claims and began to implement an ambitious program of reforms that he had formulated with the then-Prime Minister Ariel Sharon.

First , Netanyahu contended, the government must act decisively. He maintained this attitude even when the local crisis worsened as a result of international events, like the global recession, the bursting of the high-tech bubble, and an unstable security situation at home. All of these factors only heightened the urgent need for suitable economic reform. Netanyahu even emphasized that the lack of free competition in the Israeli economy had led to stagnation which created a discrepancy between Israel's economy and that of other countries (such as Singapore, Ireland, and Spain) over the past two decades. These countries had adopted the reform of a free economy, in contrast with Israel which refused to part with its socialist past.

Secondly, instead of raising taxes and increasing government spending, Netanyahu chose the opposite track, while stressing that the Israeli economy was groaning under the burden of taxes and the private sector was overly inflated (55% of the GNP). Expenses were trimmed and belts were tightened while taxes (personal, corporate, and VAT) were all reduced across the board.

The budgetary reform was only one part of a far-reaching agenda. The Likud government went farther and save the pension stipends of many citizens by providing support to a system that was facing bankruptcy. A massive investment was made in infrastructure and many government companies that were shown to be inefficient were privatized. At the end of the process, the Likud government also turned its attention to the capital market, breaking up the banking monopoly that had been holding hostage the savings of almost two-thirds of the Israeli public.

As a result of the reform, Israel has benefited form a stable, robust economic system whose growth rates have exceeded 5% in the last five years. The number of unemployed has been halved, the national debt sharply reduced, and the budget has almost been balanced. Inflation and interest rates are low, and the financial system has been placed on a firmer footing.

These reforms also rectified flaws in the social welfare system and changed a situation whereby able-bodied people preferred to collect unemployment and income supplements rather than have to pay a large chunk of their wages in taxes. This placed an even heavier burden on those who did go to work and paid taxes as required by law.

Even more serious - a cycle of poverty and dependence was created in places where the value of going to work had declined and an ever-increasing number of people joined the ranks of the chronically unemployed. This became a social problem as well as an economic one.

 Thanks to the reform that Netanyahu instituted, many Israelis rejoined the labor market and since many more Israelis were engaged in productive labor, the public coffers filled up and the present government has sufficient financial resources to support those who cannot work due to age or physical disability.

The reforms mentioned here have helped bolster Israel's position in face of the present crisis but instead of waiting out the storm, a Likud government under Netanyahu will prefer to initiate new reforms to further strengthen the Israeli economy. Such reforms would include:

1. Additional tax cuts

Taxes in Israel are still too high. Considering our geopolitical situation, we have to make ourselves more attractive than the competition, and over the last five years, we have shown that reducing the tax burden has produced economic growth.

Competitive economies have reduced taxes on businesses and will step up the process in response to the current economic crisis. Israel must not be left behind. We must also cerate a long-range plan to reduce taxes before the current plan expires in 2010, and thus send a clear message that economic reform in Israel will continue. Finally we must formulate a long-range program to reduce Value Added Tax, which is a regressive tax that burdens the weaker sectors disproportionally.

2. Reform in the Israel Lands Authority

The monopoly that the government of Israel has over land is a long-standing barrier to the development of the Israeli economy. Putting an end to this monopoly and an immediate retrenching of the bureaucratic procedures related to unfreezing land for construction would end the real estate shortage and create immediate opportunities for young couples to buy home, and especially whose who have served in the IDF.

3. Education

There is an urgent need to comprehensive reform in the educational system. Figures from other countries shows that the best way to maintain a free economy and guarantee economic opportunities for the entire populace requires a first-rate educational system.

Unfortunately the test scores of Israeli school children on international tests in mathematics and science are steadily dropping. In contrast to what is generally believed, the problem is not lack of budget. The education budget has been increasing steadily and its share of the national budget per child is growing. The right way to solve the problem lies in the comprehensive program already formulated by the Likud led by Netanyahu (the complete educational program proposed by the Likud can be viewed in Hebrew under the heading ‘Education; in the website).

4. Infrastructures

An additional key to long-term growth and reducing social gaps is investing in infrastructures. Connecting all of Israel s cities with transportation lines such as the railroad and building an advanced system of highways, in cooperation with the land reform previously mentioned, will finally wipe out the distinction between the center and the periphery in Israel. The Likud government under Netanyahu would act to develop infrastructures so that they are capable of supporting incoming tourism, which is capable of supplying a large range of jobs that do not require prolonged training.

The worst thing that can be done in the face of the current economic crisis is to revert to the outdated welfare policy that was what originally led to the collapse of the banks, swelled inflation, and prolonged the recession.

Unlike the empty promises of its opponents, the Likud offers economic leadership and bold reform that can guarantee economic growth, the robustness of the economy, and the ability of the government to take care of those who are truly in need.