Finance Minister Abraham Hirchson announced Monday evening that he
is retracting his recommendation to raise tuition at state-supported
institutions of higher learning.

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The state budget proposal will be presented to government on Tuesday, following days of confrontation on the matter within the cabinet.

The announcement followed threats by student unions to launch a strike to
prevent the opening of the academic year, as well as opposition from
Education Minister Yuli Tamir. In a letter that Tamir sent to Hirchson
Monday, she wrote that the proposal "harms the students and will deal a major blow to the accessibility of higher education."

The chair of the National Union of Israeli Students, Gal Dai, said that
while the government decided in 2001 to adopt the Winograd Committee's
recommendation to reduce tuition by half, in practice, tuition has declined by only 26 percent. Dai said that the students would fight for continued reductions in tuition fees.

Tamir is promoting a reform of her own, under the banner "Free to Study."
The plan, based on one that was implemented in Australia, calls for raising tuition while making subsidized student loans available to all. A student would have to repay the loan after graduation, but only if his or her income amounts to the average Israeli salary.

According to Tamir, Hirchson's budget proposal runs counter to agreements
that she had reached with him and Prime Minister Ehud Olmert. The proposal also violates the commitment that appears in the government guidelines, which states: "The government shall guarantee accessibility to higher education in a manner that ensures equality of opportunity for studies," and shall implement "a funding program for higher education in the spirit of the model that was successfully implemented in Australia."

Treasury delays publication of budget proposal
Finance Minister Abraham Hirchson on Monday delayed the publication of the budget proposal after details of the proposal were met with disapproval from coalition members.

Senior cabinet ministers from the Labor Party threatened Monday to vote against the budget if the social clauses of the coalition agreement were not honored, saying, "it is possible that a crisis of this sort would cause Labor to leave the government."

Senior members of Kadima said Labor's reaction to the budget indicated a deliberate attempt by Defense Minister and Labor Party Chairman Amir Peretz to use the budget to cause a coalition crisis, to advance his party and enhance his public standing.

One of the clauses that garnered heated criticism from all of the factions was the Finance Ministry's initiative to make further cuts to child allowances. Peretz said Sunday that he would not agree to such a cutback.

Shas Chairman Eli Yishai said Sunday his party would also consider leaving the coalition if the allowances were reduced.

Housing Minister Meir Sheetrit (Kadima) also said Sunday that the lower classes must not be hurt through a reduction in allowances.

A clause that generated particularly harsh criticism was the demand for the increase in tuition fees for institutions of higher education over the next four years as part of the structural changes.

The ministry also proposed the curbing of grants to discharged soldiers as part of its budget cuts.

Labor MK Ephraim Sneh told Israel Radio on Monday that "the treasury's decrees are a direct blow to those who shouldered the burden of the war - the soldiers and the students."

The government further plans on increasing the deficit in order to cover the expenses of the Lebanon war.

Bank of Israel Governor Stanley Fisher said that "taxes must be raised, and the deficit must not be increased." Fisher believes that the deficit target should be raised to only 2.4-2.5 percent and that the missing funds in the 2007 budget should come from a tax increase.

The treasury opposes any increase in taxes.

Cabinet Minister Shalom Simhon (Labor) called for the defense establishment to curb its budget demands in order to address the more pressing issues of Israeli society.

Simhon stated that the amounts demanded by the defense establishment are "fantastical," and said that if a different agenda was not set, Labor would find it difficult to remain in a government that hurts students and the elderly.

Other Labor members have called for the defense establishment to reduce its demands, reflecting criticism on Defense Minister Peretz.

MK Dani Yatom criticized Peretz, saying "the increase demanded by the defense establishment is far-fetched. The budget needs to be reopened and edited."

After the war, the defense establishment demanded an increase of NIS 29.8 billion to its already high budget - NIS 45.9 billion in 2006, as follows: NIS 11.2 billion to cover the cost of the war, NIS 9.6 billion to prepare for the next war, and NIS 3 billion in each of the next three years to enlarge the basic defense budget.

The treasury flatly refuses to allocate these amounts on the grounds that the military already enjoys a huge budget and the state simply cannot afford it.

Treasury officials are willing to allocate less than NIS 9 billion to cover the costs of the war. They say the professional forum of military and economic experts, which is to be appointed by the National Security Council, will consider the defense establishment's annual budget, its priorities and performance as well as its demands for a separate budget to deal with future security and the demand to expand its basic budget.