Dec 26, 2011 12:02 pm


At the time Barack Obama celebrates the passage of a two month tax holiday extension after 2 years of failing to pass a budget,  Israel's finance minister's attribution of Israel's economic success to a move to a biannual budget should have a particular resonance in the US.  Yuval Steinitz explained in an interview to the Times of India:

Q: Speaking of potential, Israel began 2009 with a negative GDP growth rate, ending at 4.1% - how was this accomplished?

A:It was a serious situation. We decided not to throw too much government money into dramatic, anti-cyclical Keynesian policies. That would be like sacrificing the future to save the present - but killing both. Many western countries do this but we avoided it. Instead, we adopted special measures. I shifted the country to a biannual budget, one created every 24 months, done the first time in the world.

The business sector got the message - look, the government is not in panic. We're secure enough to plan for two years in advance, not one. We're not struggling quarter-to-quarter...a two-year budget is the right thing to do. It's totally unreasonable to run a country on an annual budget because it takes six months to prepare a budget.

You're then left with just six months for's a logical necessity having six months to discuss a budget, debate in
Parliament, present ideas in public, then have 18 months for implementation. The IMF said moving to a biannual budget helped Israel handle the crisis. In my understanding, sooner or later, most countries will shift to biannual budgets.

Another important move was sitting with labour unions and employers. They gave us two years of no strikes, everyone united and contributed effort and funds to support
unemployment, etc. Finally, it's not enough to simply increase the volume of economic activity - you need federal efforts to increase investments, especially in technology with benefits for global companies to invest in Israel. Our investments in education alongside signalled we're going to produce the best human capital possible.

So, unlike western countries, we didn't emphasise ins-tant economic measures but encouraged new investments. This is immediate and ensures the future. I believe human capital will drive Israel forward - it's our most important asset. We have the most high-tech start-ups per capita than any other country, the most Nobel laureates. We devote 8 to 9% of our GDP to human capital. I see this as a main growth engine - more than infrastructure or any other investments. 


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