Finance Minister Yuval Steinitz.
Finance Minister Yuval Steinitz. Photo by Michal Fattal
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The budget-cutting axes are out again: Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz met yesterday to discuss treasury proposals to slice 2.5% from public-sector wages, slash child stipends by NIS 2.5 billion and put off road and railway projects costing billions, among other austerity measures.

By the end of the nighttime meeting, which was held in the Prime Minister's Office in Jerusalem and also featured top PMO and treasury advisers, Netanyahu was expected to decide whether next Sunday's weekly cabinet meeting would tackle next year's national budget, for the first time.

The 2013 budget is set to include deep spending cuts, coupled with higher taxes.

The treasury has said that NIS 13 billion to NIS 15 billion will have to be cut from the budget, assuming no cuts to the defense budget, in order to meet the planned budget deficit target for next year, 3% of GDP.

Some economists believe the cuts do not have to be quite so draconian. But according to treasury experts, even these massive cuts will not be enough. They say new taxes must be levied, in addition to the tax package introduced in July, which is projected to boost state revenues by around NIS 14.4 billion.

That bundle included hiking VAT from 16% to 17%, which the treasury says will generate NIS 4.4 billion a year, but which pessimists note depends on what they say is an unrealistically high 3.5% annual growth rate. Increases in income taxes are expected to pull in an additional NIS 4 billion a year.

Steinitz is expected to ask for a minimum NIS 3 billion reduction in the defense budget. That was the amount proposed by the Trajtenberg Committee and rejected by Netanyahu.

Last night's meeting followed a series of meetings between PMO and treasury officials.

In addition to the cuts in child allowances, the treasury is proposing spending reductions of unspecified amounts to other National Insurance Institute allowances.

The NII administers stipends and allowances including unemployment, disability and old-age benefits, among others.

Netanyahu is expected to make the rounds of his coalition partners in a bid to assess whether the Knesset could be expected to pass the proposed austerity budget for 2013 by the end of December.

If Netanyahu concludes that he doesn't have the political capital needed to pass the budget by the end of the year, early elections will be called and the budget headache will be passed on to the next government.