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President of the Manufacturer’s Union and Chairman of the Bureau for Coordination of Economic Organizations, my friend Shraga Brosh,
The Honorable Deputy Prime Minister and Minister of Industry, Trade and Labor, my friend Eli Yishai,
Honorable Former Presidents,
Heads of Israeli Industry,
Representatives of Economic Organizations,
Ladies and Gentlemen,
At this important event, I intended to narrow the scope of my address to topics which are truly on the agenda of an organization such as yours. However, when I thought about it, I concluded that there is, in fact, no area in the State of Israel’s spheres of activity which does not eventually intersect topics with which you deal. In any event, I will try to be as specific as possible, and in fact, I believe, there is quite a bit to say today.
I feel that this conference, being held at the end of 2006, will be recorded in history as having been held at the end of a year in which records were set, the likes of which were unknown in Israel’s economic history, and if I may say so, more than anything in the history of Israeli industry.
2006 was a year during which the State of Israel’s exports, as of a few days ago, reached NIS 270 billion – an unparalleled record. This year was the first in which the ongoing account of balance of payments was in the black, even before weighing the $6.2 billion of the final quarter of the year. That is to say, for the first time, even while deducting the foreign assistance from our balance of payments, Israeli exports were dramatically higher than the State of Israel’s imports – something which has never happened before. The password, which over the years has become an inseparable part of each meeting, conference and committee, is how to bring the Israeli economy to a situation in which exports would be much higher than imports. It can be said that we achieved this very dramatically this year, 2006, of all years, despite all the problems, hardships, difficulties and fighting which were an inseparable part of this year.
I believe that this is an exceptional accomplishment. It seems to me that I am sitting in front of those people who, first and foremost, are deserving of the respect and appreciation for this accomplishment more than any other body. It can be said that the Government did not interfere, it can be said that the Knesset did not ruin things, but it must be said that, first and foremost, you produced and exported, and Israeli industry is the proof. It is the jewel in the crown of Israeli economy. Well done.
This year ended with -0.2 inflation, that is to say, negative inflation. Usually, with such low rates of inflation, we are used to an atmosphere of recession. This year, the research division of the Bank of Israel estimates current growth at 4.8%. So if it will be 0.1 less at the end of the year, and perhaps as several people think a bit more, it does not matter. This is an amazing picture of inflation under zero and growth approaching 5% – which is higher growth than that of all the economies of Western Europe and North America.
This is in spite of all we experienced this year. And I remind you that the original forecast for 2006 was lower. The forecast in the middle of August 2006 was that we would lose one percent of GNP as a result of the fighting. So, not only did we not lose anything, we actually exceeded the original forecast of the growth foreseen at the beginning of the year. There is no need to say that the Bank of Israel’s interest rates of 4.5% in January 2007 is especially low. Historically, it is already lower for a brief period than the accepted interest rates in the economy which, in many cases, is a model for us – that of the United States. Anyway, and in spite of everything, we have not witnessed any sort of dramatic slide in the value of the shekel, which continues to be a strong currency as dollars continue flowing into the State of Israel and do not leave.
$21.2 billion were invested this year in Israel’s economy, of which $12.4 billion are direct investments, and the rest are financial investments. These are incredible, extraordinary, unprecedented figures, and the Government did not interfere. The economy succeeded.
The unemployment rate is in the process of decreasing, and is approaching 8%, which is still high. We believe that next year, it will decrease below 8%. The foreign currency reserves in the Bank of Israel, as of November 2006, stand at an enormous $28.5 billion. The public debt in relation to the GNP is higher than we would like, but is in the process of reduction, 91%. We could have significantly reduced it, but the surpluses for 2006, as you all know, were invested in replenishing stores for the security system, something which allowed us, despite everything, to end 2006 with a deficit of approximately 0.7%.
Gentlemen, with all the additions and special expenses, in the end we have 4.8% growth, a deficit of 0.7%, negative inflation, reduced unemployment, foreign investment in an unprecedented scope, immense foreign currency reserves and a stock exchange – and the Tel Aviv 100 rising 13% last year. I believe that we have good reason to be pleased. And I will say again, the Government was smart enough not to interfere. The rest is thanks to you.
This week, we took a very significant step – one perhaps as unique and unusual as any taken in the last few years – and passed the first, and highly determining stage of the State Budget on time, as we had committed to do. And next week, on January 3, we will vote. The budget contains a threshold of NIS 282.9 billion and will be passed, and I do not think that anyone can remember any sort of drama, any struggles, force or disputes between parties, fights within the coalition, between ministers and their officials, and between ministers. It was smooth, fast, elegant and correct – as an organized, responsible and wise State Budget should pass.
In this case, the thanks should go not to the Government, but rather to the parties in the coalition. The parties naturally wanted to raise demands. I read in several newspapers 5 billion, 8 billion, 10 billion, but in the end, none. Everyone accepted the position put forth by the Minister of Finance, and I was honored to support it. The budget is balanced, proper and stands up to all the tests we determined so that it would be possible to continue the process of improving and strengthening the economy, and there is no need to add anything. Rather than fighting, rather than harming the prestige and reputation of the Knesset, all the coalition parties accepted the budget. The decision was responsible, respectable and deserving, and everyone mobilized to pass the budget as presented. I must say, well done to the coalition parties.
What is included in this budget? I heard the questions posed by my friend Shraga Brosh. I wish to say, first and foremost, we increased the defense budget. We live in a different reality than that which we anticipated living in in the field of defense. We discovered things we did not know of as a new Government, we were exposed to obstacles of which were unaware. We must face this responsibly and cautiously, while at the same time acting determinedly against the threats which we still face. For all these reasons, after careful examination, I decided to raise the defense budget this year by NIS 1.9 billion, so that the defense budget includes foreign assistance in the amount of NIS 52.34 billion. This budget allows the State of Israel to take care of all the topics which must be faced, not overly generously nor excessively, but rather in the proper dosage and amounts necessary in the relevant contexts for the challenges we face, based on a multi-year plan, one I believe to be highly successful. One can always think of more, but I feel that the budget in this field is a deserving one, which provides an address which all the defense players welcome.
However, when I took on the responsibility when the Government was sworn in, I said that we have the responsibility to take advantage of the power created by the Israeli economy, in order to provide a solution to the fundamental social problems of the country.
I do not need to tell you, despite the fact that often it is claimed that this public is occupied with hundreds of millions and is unfamiliar with the difficult social problems which the Government influences. I feel that this claim is untrue. For years, leaders in the business sector and heads of industry told me of their feelings of anxiety related to the increasingly vast gap, and the need to make a special effort to try and narrow it since everyone understands that this gap threatens the social solidarity which is the infrastructure of stability and strength for the State of Israel.
Even with the special circumstances forced upon us this year, and during the building of the budget for next year, we decided to invest special resources in the social sphere so that it would be possible to strengthen the foundations which are the secret to the ability and the basis for the potential on which the State of Israel is built. In the 2007 budget, NIS 2.9 billion were added to the social budget above that of 2006, which is higher than the natural growth which always adds some margin to the previous year’s budget.
One of the topics I discussed during the Business Conference several weeks ago was that of children at risk and toddlers. For years, we ignored these problems. We knew that there were hundreds of thousands of children in this country – 330,000 – who lived at risk, and we knew, according to statistical data, that only 12,000 of these children received treatment outside the home. We did not know how to create the proper mechanisms to treat them within their communities and we did not know how to produce the proper frameworks to treat them in arrangements outside the home. We appointed a committee, headed by Prof. Hillel Schmidt. We adopted the report produced by the committee, and this time we did something which is usually unorthodox; we decided to allocate the full cost of implementing this report in the next two years, in the amount of hundreds of millions of shekels. We believe that this is a social problem which covers the length and breadth of the country, and affects hundreds of thousands of children. And we cannot expect to live in a healthy society if we do not provide a solution. The 2007 budget provides such an appropriate solution.
We increased the budget for education by hundreds of millions of shekels, and during the next year, will have to deal with hundreds of millions of shekels which are part of the State Budget, and hundreds of millions of shekels which will be transferred from the unbudgeted allocations which we collected from World Jewry. All told, this is a significant addition of upwards of NIS 700 million in this year’s budget. More is possible, and we will need to add more and we will do so. This year, we are providing the education system with an infrastructure which is the beginning of very significant change, without which we cannot implement social reform in this country. This includes the regular education system, as well as that of higher education.
We increased the health budget by hundreds of millions of shekels, when we added more than the addition provided to the medication basket the previous year and the year before that beyond the base determined in the last two years in the amount of approximately NIS 250 million. We will strengthen the health services, we are carrying out reforms in mental health, which were talked about for years, but were never implemented. This is all part of the 2007 budget.
We are adding over NIS 560 million to the welfare budget, which is over and above the natural growth. This is a significant addition. If I may say, if there is one subject in which I allow myself a touch of personal credit, it is the fact that, during my tenure as Minister of Welfare, I had slightly more influence than a Minister of Welfare usually has, in order to increase the welfare budget. There is no need to apologize for this.
We are working to encourage employment – an additional NIS 760 million to the budget will be approved next week, which is above and beyond the natural growth. It includes NIS 500 million to raise the minimum wage. In December 2007, we will complete the increase in minimum wage to more than $1,000.
When we determined the standard, the dollar was stronger. Since then, it has weakened, the shekel is higher; however, since we determined the threshold in shekels, it will be slightly more than $1,000.
If we invest in day care centers, we invest in professional training, as mentioned with an additional NIS 760 million to encourage employment. This year, as part of the multi-year plan, we are investing NIS 2.8 billion to strengthen Haifa, the North, the Gaza Envelope and Sderot. We recognize these regions as needing special reinforcement. After the fighting, I said that our intention is not only to return the situation to what it was previously, but rather to use this reality as a platform for comprehensive rebuilding, while significantly encouraging, in order to realize the employment, development and prosperity potential inherent in these regions. In 2007, NIS 2.8 billion will be invested to strengthen these areas.
In other words, we will start 2007 with a stable, growing economy, and I believe that for the first time in a number of years, it will be possible also to say that it will be an economy with human warmth, an embrace and compassion towards those who, until today, have not enjoyed the fruits of the State of Israel’s economic success over the past few years.
We predict the further reduction of unemployment rates in 2007, growth similar to that of this year, which means that we believe in Israeli industry, which has strength, creativity, wonderful entrepreneurial energy, which is the basis for the Israeli industry’s strength. This is so that we can continue the accomplishment determined this year: of positive balance of payments; encouraging foreign investment in the Israeli economy; increasing per capita income; maintaining inflation in the target range determined by the Government and the Bank of Israel; and so that we will have the option of divvying up the fruits of this success in a manner which corrects the social distortions unconsciously and insensitively created over the years. We are investing in building the strength to defend the country in order to ensure the security of all residents of the State of Israel – in the South, the center and the North.
May we all have a successful year.
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