Hershkovitz and Steinitz.
Gal Hershkovitz, left, sitting next to Finance Minister Yuval Steinitz. Photo by Emil Salman
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A storm raged in the Finance Ministry yesterday after the head of the budget division, Gal Hershkovitz, demoted his top deputy as officials are in the midst of readying a new fiscal package.

In a highly unusual move, Hershkovitz told Eyal Epstein he was no longer responsible for preparing the 2013-2014 budget and the Budget Arrangement Law due to be presented to the new government in the coming weeks, or for macroeconomic issues. His brief from now on would be limited to minor budget items, such as the Environmental Affairs Ministry and the Civil Service Commission, Hershkovitz said. Finance Minister Yuval Steinitz, who is in the United States, was updated on the situation, but it was unclear what his stand on the matter was or whether he would intervene.

Treasury officials, who expressed doubt that Hershkovitz had the authority to fire his deputy, were shocked by the news. "The budget division is in a serious crisis," one official told TheMarker.

Epstein's demotion comes as treasury officials are working around the clock to ready a new budget by the time a new government is sworn in. In his letter of dismissal, Hershkovitz said he had lost confidence in Epstein over the past few months and accused him of leaking damaging information to the media.

Yesterday afternoon the two met privately after which Hershkovitz informed the staff of the demotion.

In Epstein's place, Hershkovitz named Meir Bing, who has been in charge of defense spending in the budget division.

Epstein has worked for more than a decade in the budget division and was regarded as one of the best economists in the ministry, so that his promotion to deputy in the unit seemed natural. His relations with Hershkovitz grew turbulent in the middle of last year after he warned Hershkovitz that the 2012 fiscal deficit would be much wider than forecast.

Epstein said Hershkovitz didn't take the warning seriously and erred in his forecasts. But Hershkovitz, who wasn't responsible for the 2011-2012 budget, said he had told his deputy that he would adjust it as needed if and when the time came. In any event, the 2012 budget deficit ballooned to 4.2% of gross domestic product even after the government took steps to raise taxes and cut spending in the summer of last year. Relations between the two men deteriorated further after the preliminary deficit estimate was released at the start of this month. Prime Minister Benjamin Netanyahu and Steinitz accused treasury officials of leaking information on the budget that hurt their reputations in the midst of the election campaign.

In recent days, senior treasury officials, including director-general Doron Cohen, had sought to mediate between them. But Hershkovitz was determined to demote his deputy and in a phone call with Cohen at dawn said it was "either me or Epstein."

Officials told TheMarker that the budget division now is riven by internal divisions and that there would be further unspecified fallout in the next several days.