Sunday, April 09, 2006
Who will pay for Olmert's plan?
Read this:
And here's the text, just in case it's no longer available online, which sometimes happens. I think that it's important enough to present here.
Israeli public will have to pay
As with Gaza pullout, taxpayers will shoulder burden for future West Bank move
by Sever Plocker
The eviction of some 1,500 families from the Gaza Strip last summer has so far cost the country NIS 8.5 billion (about USD 1.8 billion). NIS 2.5 billion (about USD 532 million) of that is intended to cover military costs, the rest for civilian costs.
Ehud Olmert's "convergence" plan could affect 20,000 families, or about 90,000 residents of Judea and Samaria. Some will be moved to within the 1967 border; others to "consensus" settlement blocs. What does this massive program mean in economic terms?
If we take the evacuation-compensation model, the State of Israel will be required to pay 20,000 evicted families direct compensation, at a cost of about NIS 66 billion (about USD 14 billion). And if we use Gaza as an example, temporary housing, moving costs and new infrastructure will cost an additional NIS 13 million (about USD 2.7 million).
The Ministry of Defense estimates that a unilateral disengagement from Judea and Samaria will cost the army about NIS 16 billion (about USD 3.4 billion).
And so initial estimates of a second disengagement program stand at about NIS 95 billion, or USD 20 billion. Put differently: 17 percent of the entire output of the State of Israel.
But that's not the whole story. Far from it.
Additional costs
Most Gaza residents were able to be moved to existing settlements within the green line. Only a few were placed in the new housing project at Nitzanim. Thus, the country saved on the environmental and infrastructure costs bound up with establishing new cities and neighborhoods.
But to accommodate 90,000 settlers, evicted and bitter, the investment of public money in building new towns, cities and villages will be very high.
And who will worry about employing thousands of evacuees from Judea and Samaria? Where will they find jobs? Many of them will simply become a burden on the public purse.
In conclusion: The economic cost of Ehud Olmert's proposed "convergence" plan is NIS 120 billion. That's USD 25 billion, folks.
Twenty-five billion dollars, without taking into account problems such as underestimations, bottlenecks in carrying out the program, the fact that there is no national consensus for such a move, and other problems.
To compare: The entire 2006 budget, without repaying debts, is NIS 230 billion (about USD 49 billion). The defense budget is NIS 46 billion (about USD 9.8 billion). The four-year budget for the war on poverty is NIS 9 billion (about USD 1.9 billion).
A unilateral pullout will cost NIS 120 billion. Who's gonna pay it? Who's gonna pay?
U.S. won't help
Not the Americans, that's for sure. For the Gaza pullout Israel asked the Bush administration for USD 2 billion in aid to build new IDF bases and to invest in developing the Negev and Galilee regions (in order to not have to ask for money to compensate settlers). We got nothing. Not one cent.
The fact that Israeli tax payers were forced to shoulder the entire NIS 8.5 billion (about USD 1.8 billion) price tag for the Gaza pullout bodes extremely poorly for the notion that any American administration will foot the bill for another unilateral move.
This plan, as it has been presented by the acting prime minister, includes the annexation of a fair amount of Palestinian land. It is impossible to see any U.S. government aiding a move that would include an un-agreed upon annexation of settlement blocs. They haven't even agreed to finance one single kilometer of the West Bank separation fence.
Credit for disengagement
Perhaps Israel could finance West Bank disengagement with foreign credit? No way.
Foreign investors will only fund those national projects that will yield a positive economic benefit.
This is how Israel, for example, was able to gather USD 9 billion to absorb new immigrants from the former Soviet Union. The Russian aliyah made the Israeli market flourish, spurred growth and exports and was a central factor in the growth of the hi-tech industry. It was a worthwhile investment.
The withdrawal from Judea and Samaria, and moving the settlers from place to place will not raise the potential for growth in Israel, and would not be considered an investment in research and development or creative assets.
There is no reason to expect favorable credit terms from international finance institutions such as the World Bank. Israel, as far as the World Bank is concerned, is a developed country with no rights to discount financing.
And the World Bank is even more limited than the U.S. government with regard to political games.
World Jewry
Okay, then, what about Diaspora Jews? Maybe the Jewish Agency will undertake an emergency fund raising drive for the "convergence" plan?
But even if we assume that world Jewry would dig deep into their pockets to finance the second disengagement, even in the absence of a clear national consensus in Israel. How much could they reasonably be expected to give? A billion dollars? Two billion?
There is only one chance for American and/or international aid for removing settlements and setting borders in Judea and Samaria. As we found out during the Camp David summit in July, 2000 between President Bill Clinton, Ehud Olmert and Yasser Arafat, Washington is prepared to dole out funds generously (at that time, discussions revolved around the number USD 20 billion) for an "end of the conflict" agreement between Israel and the Palestinians, on condition that other countries also chip in to help out both Israel and the Palestinians.
Such aid, however, is dependent on having a partner. And to create a partner, there must be dialogue. For dialogue, there must be some formal arrangement. Unilateralism won't cut it, even if the world views it positively.
The Americans' refusal to give financial aid for the Gaza move, a pullout President Bush and Congress praised, teaches us that we'd better not count on foreign funding for future unilateral pullouts.
We'll pay
We will have to pay. In order to finance the second disengagement out of our own pockets, each family in Israel will be forced to pony up NIS 70,000, or USD 15,000, over the course of three-to-four years. Olmert says his government will unilaterally set Israel's final borders.
How do you give NIS 70,000 to the Finance Ministry? Either by raising taxes or by issuing bonds. Neither option is particularly heartwarming.
Using bonds to raise money from the public is not a recommended from the point of view of economics. It's expensive for the government, nebulous for citizens and strikes a blow at the standing and grading of the economy and stock market.
Israeli governments have not used interest bonds since the failed "Peace for the Galilee Bonds."
But higher taxes are also no great solution: An additional NIS 40 billion (about USD 8.5 billion) in taxes per year for three years means a very sharp rise in personal interest tax rates (the PR slogan could be "reevaluating taxes to set our borders") and other, indirect taxes such as petrol taxes.
A comparison
In terns of total cost to the economy, financing the disengagement/convergence plan is of the same scale as West Germany's annexation of East Germany. There are two differences, however, neither one in our favor: Germany is a lot richer than Israel, and there was no debate amongst the German nation about the need to annex the eastern part of the country.
Nobody knows how much the Israeli public has invested to this point in building settlements. This is an economic secret that cannot be deciphered.
On the other hand, the cost of withdrawal is clear and open. In economic terms, this is called a "dead burden." Israeli citizens who will be required to pay higher taxes, lower their standards of living, tighten their belts and forget about social programs such as the war on poverty or education reform – the burden will be very much alive. Alive and painful.
(03.26.06, 11:38)
And here's the text, just in case it's no longer available online, which sometimes happens. I think that it's important enough to present here.
Israeli public will have to pay
As with Gaza pullout, taxpayers will shoulder burden for future West Bank move
by Sever Plocker
The eviction of some 1,500 families from the Gaza Strip last summer has so far cost the country NIS 8.5 billion (about USD 1.8 billion). NIS 2.5 billion (about USD 532 million) of that is intended to cover military costs, the rest for civilian costs.
Ehud Olmert's "convergence" plan could affect 20,000 families, or about 90,000 residents of Judea and Samaria. Some will be moved to within the 1967 border; others to "consensus" settlement blocs. What does this massive program mean in economic terms?
If we take the evacuation-compensation model, the State of Israel will be required to pay 20,000 evicted families direct compensation, at a cost of about NIS 66 billion (about USD 14 billion). And if we use Gaza as an example, temporary housing, moving costs and new infrastructure will cost an additional NIS 13 million (about USD 2.7 million).
The Ministry of Defense estimates that a unilateral disengagement from Judea and Samaria will cost the army about NIS 16 billion (about USD 3.4 billion).
And so initial estimates of a second disengagement program stand at about NIS 95 billion, or USD 20 billion. Put differently: 17 percent of the entire output of the State of Israel.
But that's not the whole story. Far from it.
Additional costs
Most Gaza residents were able to be moved to existing settlements within the green line. Only a few were placed in the new housing project at Nitzanim. Thus, the country saved on the environmental and infrastructure costs bound up with establishing new cities and neighborhoods.
But to accommodate 90,000 settlers, evicted and bitter, the investment of public money in building new towns, cities and villages will be very high.
And who will worry about employing thousands of evacuees from Judea and Samaria? Where will they find jobs? Many of them will simply become a burden on the public purse.
In conclusion: The economic cost of Ehud Olmert's proposed "convergence" plan is NIS 120 billion. That's USD 25 billion, folks.
Twenty-five billion dollars, without taking into account problems such as underestimations, bottlenecks in carrying out the program, the fact that there is no national consensus for such a move, and other problems.
To compare: The entire 2006 budget, without repaying debts, is NIS 230 billion (about USD 49 billion). The defense budget is NIS 46 billion (about USD 9.8 billion). The four-year budget for the war on poverty is NIS 9 billion (about USD 1.9 billion).
A unilateral pullout will cost NIS 120 billion. Who's gonna pay it? Who's gonna pay?
U.S. won't help
Not the Americans, that's for sure. For the Gaza pullout Israel asked the Bush administration for USD 2 billion in aid to build new IDF bases and to invest in developing the Negev and Galilee regions (in order to not have to ask for money to compensate settlers). We got nothing. Not one cent.
The fact that Israeli tax payers were forced to shoulder the entire NIS 8.5 billion (about USD 1.8 billion) price tag for the Gaza pullout bodes extremely poorly for the notion that any American administration will foot the bill for another unilateral move.
This plan, as it has been presented by the acting prime minister, includes the annexation of a fair amount of Palestinian land. It is impossible to see any U.S. government aiding a move that would include an un-agreed upon annexation of settlement blocs. They haven't even agreed to finance one single kilometer of the West Bank separation fence.
Credit for disengagement
Perhaps Israel could finance West Bank disengagement with foreign credit? No way.
Foreign investors will only fund those national projects that will yield a positive economic benefit.
This is how Israel, for example, was able to gather USD 9 billion to absorb new immigrants from the former Soviet Union. The Russian aliyah made the Israeli market flourish, spurred growth and exports and was a central factor in the growth of the hi-tech industry. It was a worthwhile investment.
The withdrawal from Judea and Samaria, and moving the settlers from place to place will not raise the potential for growth in Israel, and would not be considered an investment in research and development or creative assets.
There is no reason to expect favorable credit terms from international finance institutions such as the World Bank. Israel, as far as the World Bank is concerned, is a developed country with no rights to discount financing.
And the World Bank is even more limited than the U.S. government with regard to political games.
World Jewry
Okay, then, what about Diaspora Jews? Maybe the Jewish Agency will undertake an emergency fund raising drive for the "convergence" plan?
But even if we assume that world Jewry would dig deep into their pockets to finance the second disengagement, even in the absence of a clear national consensus in Israel. How much could they reasonably be expected to give? A billion dollars? Two billion?
There is only one chance for American and/or international aid for removing settlements and setting borders in Judea and Samaria. As we found out during the Camp David summit in July, 2000 between President Bill Clinton, Ehud Olmert and Yasser Arafat, Washington is prepared to dole out funds generously (at that time, discussions revolved around the number USD 20 billion) for an "end of the conflict" agreement between Israel and the Palestinians, on condition that other countries also chip in to help out both Israel and the Palestinians.
Such aid, however, is dependent on having a partner. And to create a partner, there must be dialogue. For dialogue, there must be some formal arrangement. Unilateralism won't cut it, even if the world views it positively.
The Americans' refusal to give financial aid for the Gaza move, a pullout President Bush and Congress praised, teaches us that we'd better not count on foreign funding for future unilateral pullouts.
We'll pay
We will have to pay. In order to finance the second disengagement out of our own pockets, each family in Israel will be forced to pony up NIS 70,000, or USD 15,000, over the course of three-to-four years. Olmert says his government will unilaterally set Israel's final borders.
How do you give NIS 70,000 to the Finance Ministry? Either by raising taxes or by issuing bonds. Neither option is particularly heartwarming.
Using bonds to raise money from the public is not a recommended from the point of view of economics. It's expensive for the government, nebulous for citizens and strikes a blow at the standing and grading of the economy and stock market.
Israeli governments have not used interest bonds since the failed "Peace for the Galilee Bonds."
But higher taxes are also no great solution: An additional NIS 40 billion (about USD 8.5 billion) in taxes per year for three years means a very sharp rise in personal interest tax rates (the PR slogan could be "reevaluating taxes to set our borders") and other, indirect taxes such as petrol taxes.
A comparison
In terns of total cost to the economy, financing the disengagement/convergence plan is of the same scale as West Germany's annexation of East Germany. There are two differences, however, neither one in our favor: Germany is a lot richer than Israel, and there was no debate amongst the German nation about the need to annex the eastern part of the country.
Nobody knows how much the Israeli public has invested to this point in building settlements. This is an economic secret that cannot be deciphered.
On the other hand, the cost of withdrawal is clear and open. In economic terms, this is called a "dead burden." Israeli citizens who will be required to pay higher taxes, lower their standards of living, tighten their belts and forget about social programs such as the war on poverty or education reform – the burden will be very much alive. Alive and painful.
(03.26.06, 11:38)
