fortunately, the governments far larger deficit and its high ratio to gdp make it all but inevitable that the central state will eventually have to undertake major reforms in the absence of a spectacular change in the social-democratic coalition, which can be expected to disintegrate after the may 2004 elections. the main strategic goal must be the reduction of government deficits, the unemployment rate, and the growth rate of government spending, whether with more or less tax revenues. the other major goal must be the promotion of economic liberalization, partly through reductions in domestic protection, partly by granting states autonomy with respect to the labor, industrial, and commercial regulations that they already impose, and partly by introducing a lower corporate tax rate and a more competitive corporate and financial sector. the government must seriously pursue changes in foreign investment rules and reductions in the dues paid by immigrants. and, if these are insufficient to accomplish its mission, it should institute emergency market-friendly measures, including higher taxes on trade and import-based transactions, extending the restrictions on the trade of natural gas and electricity to cover all electricity used in manufacturing, and lowering the high tax rate on income from capital transfers.
the most difficult obstacle lies in the fact that most israelis believe, with some justice, that the government depends on central planning, that high levels of economic protection are necessary to make the economy competitive, and that trade protection is a necessary step toward full-employment. these prejudices are reinforced by the governments security policies, in which unemployment and unemployment insurance play a major role in dissuading israelis from public-sector employment, the welfare benefits that are provided to the unemployed are not usually effective at raising employment, the public sector is insulated from the immediate pressures of the private economy, and the public social-security system is set up to insure the retirement of those working in the public sector at the time of their retirement. all these factors tend to protect the public sector from the economic dislocation that has occurred in other modern industrial nations.