Business Today

There is a strong logic for biennial budgets: Yuval Steinitz

During his visit to India, Isreal's Finance Minister Yuval Steinitz took time off from official engagements to talk to Anand J and Sanjiv Shankaran of Business Today on the future of economic ties between the countries. Steinitz, a philosophy professor, also spoke about some of radical changes he has brought about in Israel's budget making process. Edited excerpts:

Anand J and Sanjiv Shankaran    New Delhi     Last Updated: January 10, 2012  | 21:55 IST

Isreal's Finance Minister Yuval Steinitz
Isreal's Finance Minister Yuval Steinitz
Yuval Steinitz, finance minister of Israel, was in India in December 2011 to strengthen ties between the two countries. His visit was followed by that of India's foreign minister S M Krishna to Israel on 9 January 2012.

During his visit to India, Steinitz took time off from official engagements to talk to Anand J and Sanjiv Shankaran on the future of economic ties between the countries. Steinitz, a philosophy professor, also spoke about some of radical changes he has brought about in Israel's budget making process. Edited excerpts:

We would like you to give an idea of the biennial budget. Last time, I remember, Canada tried it and it didn't  work well.  So, to actually come up with two-year budgets is very unusual and what exactly prompted that move?
Well, it was my understanding always that one-year budget is totally unreasonable to country's budget and economy. There is a strong logic economically and philosophically.

We spent last two months of the year to prepare the next year's budget. Then, they spent ten months focusing on spending and executing the plans and budget. In the (next) two months, again, you continue to do both. But again the focus of the management of the company will be in preparing the New Year budget. Then you cannot find time for implementation in these months.

Then we decided, let's spend six months for planning and rest 18 months on implementation. Otherwise it is totally unreasonable. Now logic should prevail. So it is what we are doing in the country. In the country, it is much bigger than any private and public company. And you have also complications that you have to discuss all the things in Parliament, not just in the government.

So, most countries spent at least six months in preparing the next year's budget plans. So, they can focus solely on implementation of the budget for six months. Because then the process begins. That is totally irrational proportion of 1:1 at the state level between planning and implementation.

So, this has been the pattern for the world for almost hundreds of years. Not in Israel. As the first philosophical finance minister - I used to be philosophy professor - before entering politics, this is something that must be re-examined. You can fix the situation ideally by squeezing the planning phase to two months and thereby enlarging the implementation phase of the budget.

We cannot implement two months budget not because of the size of the country, but also because of the democratic complexity. It have to pass in parliament and in many states, you have two houses, upper and lower houses. Then, you have an 18 months implementation phase. Then the proportion of 1:4. It is almost a rational and even a logical necessity to move to the biennial budgeting process.

One aspect of the budget, you did it in the middle of a crisis. There must be lot of resistance from within your own government to actually stick to your own plans. Nobody was sure, what was going to happen in the next two months...

There was some resistance. The key figure, Prime Minister (Benjamin) Netanyahu, when I came to power, was there even before I came into the government. The first reaction was this is a very dangerous experiment because it hasn't been tried it before.  But after one hour discussion, he became very enthusiastic. He said that this is a very innovative idea and rest of it is history. It resulted in us losing flexibility. But if you are to gain a maximum flexibility, it means we have to make a quarterly budget to be extremely flexible.  When you plan in advance, you lose flexibility. But you gain anyhow.

So, your approach has been to have some kind of stability in the government policy and not too much fluctuation...
Yeah, I mean the population in Israel is growing. Among the western countries, Israel is the only country where population is growing. It is a natural growth. In all other countries of Europe and US there is no natural growth. In some places there is immigration from outside. Israel is the only developed western country today to have natural growth.

To come to your visit here, you had meetings with ministers across the board. Finance, education and also our national security adviser. I notice that your record as a parliamentarian is that you have more interest in security and foreign affairs than economics or finance. Just give me an idea of what was the primary objective when you came to India in terms of visit and what is it that you gained and what are you taking away.

First, very clearly, I think my role as Finance minister of Israel is economic relations and collaboration and India is first priority. We have very good economic relations with US, which is also a strategic alliance. But first priority in relations is economic, academic relations with India. Why this is so? For a variety of reasons.

First, India is one of the positive powers of Asia in this region. You have dictatorship in Iran. There is fundamentalist danger from the Islamic regimes. India is a true democracy and more importantly, it is an open society. It is not closing itself to the new ideas, to education, views and opinion. It is very important. I have confidence that in few years India will be one of the two or three major economic superpowers of the world. And it is important that it is a big democracy. It is very important for the world that it is democratic.

Second, I think, look at the potential and opportunities for countries to trade.  There is plenty of space and potential to cooperate. First we can contribute a lot on technology and we are ready to do it from Israel to India.

There is a very special interest of India in Israel; unparalleled to any other country. I heard from many Israelis and also from US that they feel more comfortable in the company of India. That is the special kind of affinity between the two nations. I don't know to explain it. This might also be helpful in the sense that we can create some kind of very deep cultural, academic cooperation.

You see India being increasingly open to new markets for Israeli exports. The volume of trade this year or last year is not that important. Much more important is to create some kind of deeper cooperation and collaboration between the countries vis-à-vis our cooperation with US.

It is also important to cooperate with companies and for research between India and Israel. Also, universities to cooperate with each other. Then the immediate volume of trade will increase. Much more strategic cooperation will increase. Israel is a very small country. I think we are very advanced in technology. You know that the number of start-ups is high in Israel.  What we spend on R & D in Israel; we spend around 8-9 per cent of our GDP (gross domestic product). Most nations are spending around 1 per cent or 1.5 per cent. But we spend more than three times that figure.

We are ready to share information with India. Also, on security and defense. The levels at which what we do only with US and most other western countries.

I think we can have good contribution to the agri-technology. On water re-cycling, Israel is the first country in the world, in one year from now, 2013, more than 90 per cent - now it is 70 per cent - of the water for domestic use for households will be desalinated from the Mediterranean Sea. More than 90 per cent of the water for farming, agriculture will be recycled. Today it is 75 per cent. Even then, more than 90 per cent, no country will get closer figures.

Most important is to create a free-trade agreement with India. This was already agreed between finance minister (Pranab Mukherjee) and myself almost a year ago, when we met at Washington. The discussions are already going on. More important still is that we decided to get a government mechanism that supports R&D.

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