Download Political context

Ministry of Finance
How does the Political Context in Israel
Constrain which Fiscal Rules are Best?
Yarom Ariav
Director General
May 2009
IMF – Conference on Fiscal Frameworks
May 2009
1. The Israeli Society
2. Inequality
3. The Political System
4. Historical Background
5. Irregularity in Expenditures
6. Fiscal Rules
7. Summary
2
The Israeli Society
Heterogeneous Society:
 Arab minority
 Ultra-Orthodox
 Immigrants
Every Group Has It’s Special Needs and
Demands
3
Inequality
 High Overall Inequality
 Inequality among Ethnic Groups
 Center Vs. Periphery
Specific Attention and Pressure Groups
4
The Political System
 Parliamentary System
 Proportional Voting
 Low Threshold (2%) – Large Number of
Parties
Political Instability, Coalition Regime
5
Historical Background
 Until the 1970’s – A Centralized Mostly
Planned Economy, Very Strong Labor Party
 1977 – Political Change:
• Towards a Market Economy, Fiscal
Dispersal
 1985 – The “Stabilization Plan”:
• Return to Fiscal Control
 Fiscal Rules:
• 1992 – Deficit Reduction Law
• 2005 – Limit on the Growth of Expenditure
6
Irregularity in Expenditures
 Sensitive Geo-Political Situation
 Absorption of Immigration
 Political Instability
7
Fiscal Rules
Fiscal Rules are Keys to:
o Achieve Fiscal Discipline
o Increase Long-Term Stability
o Improve Credibility
o Support Public Sector Efficiency
8
Fiscal Rules- Principles
 Simplicity
 Transparency
 Based on Actual Developments rather
then on Forecasts
 Credible
 Not Pro-Cyclical
9
Summary
 Unique Political and Social Characteristics
 Continuous Pressures on the Budget and
Fiscal Stability
 Importance of Keeping Fiscal Rules
10
Thank you!
11