Israel's Finance Chief Urges Peers to Adopt Two-Year Budgets

Article excerpt

Israel

Just two years after being mired in the depths of the global financial crisis, Israel is experiencing a sharp and sustained recovery that is the envy of many other developed countries. Much of the credit for the remarkable turnaround goes to Israeli finance minister Yuval Steinitz's innovative recovery strategy- a strategy he is now encouraging other countries to adopt.

Central to Steinitz's strategy for pulling Israel out of recession was a decision to switch the government budget to a two-year cycle. Having taken over as finance minister at the height of the global crisis, in late March 2009, the former professor of philosophy and logic äso took a fundamentally different approach to those of other developed countries' finance chiefs in structuring his nation's budget. "In most countries, governments radically cut taxes, because it is the best way to inject more oxygen into the economy," says Steinte. "We raised taxes- temporarily- but with a commitment to cut taxes steadily for the following seven years."

Steinte based his decision on the belief that future tax incentives are better at motivating economic activity than current tax cuts. "You should never sacrifice the future of your economy in order to save your economy in the present. If the future is gloomy, it will discourage present activity," Steinte comments.

Steinte, who describes one-year budgets as "a terrible mistake," believes that promising future tax cuts actually stimulated economic activity in the short term, while the two-year budget demonstrated the government's confidence in the economy's long-term prospects. …