The Finance Ministry on Sunday rejected most of the defense establishment's demands to increase its 2007 budget, saying fulfilling these demands would bring the country into economic regression.

Prime Minister Ehud Olmert, Finance Minister Abraham Hirchson and Defense Minister Amir Peretz met on Sunday to discuss the proposed defense budget for the 2007 fiscal year.

The treasury rejected the defense establishment's request to add NIS 9.6 to its budget to prepare better for the country's next war, and denied its request for an additional NIS 3 billion for the Defense Ministry's basic 2007 budget.

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The treasury recommended establishing a forum of senior finance and defense experts, to be handpicked by the national security council, to consider the requests.

The Finance Ministry did accede to the Defense Ministry's request to cover the costs of the war in Lebanon, saying it was willing to allocate NIS 9 billion in coverage costs, despite the NIS 12 billion demanded by the defense establishment. The funds are to be transferred over the course of the next three fiscal years, until 2008.

Sources at the meeting said Peretz is prepared to moderate the demands of the defense establishment in order to avoid harming the welfare basket.

"The defense budget is not my private issue. It is the issue of the prime minister, the cabinet and the security cabinet," Peretz said during the meeting.

Minister Bar-On: Budget cuts will harm standard of living
Kadima ministers met Sunday to discuss the massive budgetary cutbacks planned by the government to cover the military costs of the war in Lebanon.

Interior Minister Roni Bar-On said the proposed cuts would affect all citizens and bring about a general decrease in the standard of living.

Bar-On warned that the government must make sure the financial burden is spread evenly on all parts of society rather than focuse on any particular class.

Acting Justice Minister Meir Sheetrit criticized the government's plans to increase military spending on social welfare, saying the defense budget had sufficient funds but was being mismanaged.

Sheetrit suggested an alternative to reducing social welfare budget by which the yearly national deficit would be placed at 3 percent - 0.2 percent more than the 2.8 percent the government is believed to be currently planning.

Such action, Sheetrit said, will bolster the budget with an additional NIS 28 billion and lessen the burden placed upon Israel's poorer citizens.

Earlier on Sunday, Peretz told reporters during a visit to a school in Nitzani Eshkol to mark the opening of the school year that he was "not willing to put children and senior citizens in the path of tanks and jets."