Netanyahu with Barak - Emil Salman - 14082011
Benjamin Netanyahu and Ehud Barak Photo by Emil Salman
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The defense budget is likely to be a major point of conflict amid the proposals to solve the country's social crises: The committee led by Prof. Manuel Trajtenberg reportedly believes that it needs to be heavily cut, a proposal expected to draw strong objections from Defense Minister Ehud Barak.

Finance Minister Yuval Steinitz, former head of the Knesset Foreign Affairs and Defense Committee, reportedly supports cutting the defense budget by no more than a modest NIS 1 billion to NIS 3 billion.

Barak and Prime Minister Benjamin Netanyahu recently agreed to increase the defense budget by NIS 5 billion to NIS 7 billion.

The treasury denied that defense would be getting billions more.

Steinitz reportedly believes the committee's social recommendations could be funded by cutting billions of shekels from the Israel Railways' development budget. He also is said to support lowering some taxes, which has been one of the tent protesters' central demands.

Steinitz reportedly does not support the idea of lowering VAT, but he would be willing to see the purchase tax on spare auto parts reduced, along with import duties on foods.

In the process, he wants to do away with see several tax exemptions, including that on fruits and vegetables. He also reportedly does not support lowering taxes on cars, since Israel has a relatively large number of vehicles per capita.

Trajtenberg was chosen to lead the committee charged with changing the country's social and financial priorities following a tense week at government ministries.

"No Yuval, the committee can't be led by your director general [of the Finance Ministry] or my director general [of the Prime Minister's Office]. The position must be filled by a public personality who is not under our authority, such as an academic, who would be acceptable to the protesters and to us," Netanyahu reportedly said to Steinitz during the heated week between the two big protests.

The committee is scheduled to submit its conclusions to Netanyahu and Steinitz at the end of September.

Netanyahu told his ministers on August 1 that he would be appointing a committee of experts and ministers to address the protesters' demands. That same day, without warning, treasury director general Haim Shani announced he would be stepping down. Shani, in coordination with Bank of Israel Governor Stanley Fischer, had been planning to lead a committee to address the issues facing the middle class, and was upset Netanyahu had undermined him.

The following day, Netanyahu found himself subject to heavy pressure from ministers clamoring to be on the committee. Earlier, Steinitz had spoken with Prof. Eytan Sheshinski about taking the role, but Sheshinski said no. Steinitz suggested Netanyahu appoint a committee only of experts, similar to the Sheshinski committee discussing the country's fiscal policies regarding its natural gas, and Netanyahu accepted the idea.

The two quickly decided that they wanted the committee to be led by Trajtenberg, head of the Planning and Budgeting Committee of the Council for Higher Education. Steinitz pushed to have a few outside experts, coupled with a significant number of officials from the Finance Ministry, Bank of Israel and the Prime Minister's Bureau.

Steinitz met with Trajtenberg twice at the latter's home in an attempt to convince him to take the job. Trajtenberg also spoke with Netanyahu by phone, and then they met at the latter's Jerusalem house a week ago.

Last Saturday, Trajtenberg also met with Defense Minister Ehud Barak at the latter's luxury apartment in the Akirov Towers. While Barak did not tell the professor what he's said on nearly every occasion over the past few years - he understands the social crisis, but the defense budget cannot be used to solve matters - his deal with Netanyahu to increase his ministry's funding speaks for itself.

The Trajtenberg committee will be working with statistics from the Finance Ministry's Tax Authority and Budgets Division. Both are under Steinitz's directive.

The Tax Authority team is supposed to give the committee a list of options with their price tags. That team, led by chief taxman Yehuda Nasradishi, will demand that the committee propose tax increases to meet any cuts it calls for.

Trajtenberg has reportedly said that the government cannot overspend its budget. The state is scheduled to take in NIS 232.3 billion in tax revenue next year.

Nasradishi is expected to tell the committee that every 1% reduction in VAT - one of the protesters' demands - will cost the state NIS 3.6 billion, but that the state can save NIS 2.5 billion by halting next year's planned reductions in corporate tax and income tax. Freezing the law for encouraging capital investments will save another NIS 1 billion. The taxman is also expected to suggest adding two new tax brackets for people earning more than NIS 60,000 a month and NIS 100,000, respectively, and suggest implementing an inheritance tax on estates of more than NIS 4 million.

Other possibilities include doing away with tax exemptions, such as subjecting vegetables to VAT.

Meanwhile, the Budgets Division will suggest potential places to save money, such as by cutting the defense budget by several billion shekels. Steinitz has said that increasing the defense establishment's transparency and efficiency will save billions.