The cabinet on Sunday passed a proposal to cut the state budget NIS 1.3 billion, in order to cover increased funding for defense and education.

Fifteen ministers supported the bill outlining the reduced budget. Six ministers from Shas and Labor voted against it and three abstained. Finance Minister Roni Bar-On said he would bring the matter before the Knesset Finance Committee after deliberations on the implications of cuts in the defense budget.

The funds will be cut from some of the ministries' emergency reserve budgets, not their active budgets, creating a false impression of reduced budget cuts. The budgets of the Health Ministry and the Welfare Ministry will not be cut, nor will the budget for higher education.

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Prime Minister Ehud Olmert said the cuts, which are intended to fund new initiatives at the defense and education ministries, will actually affect only a few ministries.

Agriculture Minister Shalom Simhon (Labor) said after the cabinet meeting that the cuts approved during the meeting were not necessary, and added that bringing the proposed budget cuts up for a cabinet vote was a dirty trick perpetrated by the Finance Ministry to weaken the cabinet's resistance toward the 2008 budget.

During the first half of 2007, state revenues exceeded projected forecasts by NIS 15 billion creating a large surplus. However, the cabinet has not increased the state budget.

The treasury originally proposed to cut six percent of the state budget, a total of NIS 1.3 billion. Due to objections from Shas and Labor ministers, the treasury changed its proposal and the cabinet was told only three percent of the budget would be cut. However, the ministries will actually fund the full NIS 1.3 billion, as the three percent of the cuts that were removed from the proposal will be taken out of the ministries' emergency reserve funds. The move will prevent the ministries from being able to access the funds in the emergency reserves, but since the reserves are not always utilized, it is possible that the cut will add up to less than the original six percent.

Finance Minister Roni Bar-On informed the cabinet that the cuts made to the ministries' budgets would also include a NIS 500 million cut to the defense budget. The matter will be brought before that cabinet for a vote on Wednesday. Only after the vote, will the Finance Ministry bring the budget cuts before the Knesset Finance Committee for approval.

The Israel Defense Forces opposes the cut from the defense budget, saying that this late in the year the projects that will suffer are the ones that still have funds available, which are the more vital projects such as reserves training, flight hours, supplies and perhaps even essential training exercises.

The Finance Ministry believes that the opposition staged by Shas and Labor to the proposed budget cuts was a trial run in preparation for the hearing on the 2008 budget scheduled for next Sunday. During the hearing, the cabinet will be asked to cut an additional NIS 9 billion from the state budget.

Olmert told his ministers that the government must make this sacrifice for its top priorities of defense and education, and live up to its responsibility for fiscal discipline that promotes economic growth.