Israel's budget will be NIS 313.8 billion for the year 2009, and rise to NIS 326.5 billion the following year, under the Finance Ministry proposal presented to the cabinet late last night.

In both 2009 and 2010, the budget will increase by 1.7% (compared with the budget of the previous year), which is the maximum it may increase under law. Even so, it isn't enough to cover currently planned spending.

The Defense Ministry budget will contract by NIS 3 billion in each of the two years, which means that the defense budget will not be growing as urged by the Brodet Committee, which recommended in 2007 that the defense budget grow by NIS 10 billion a year.

On Sunday the cabinet agreed to cut NIS 14 billion from spending currently mandated by legislation and coalition deals. However, the budget proposal dished up yesterday falls short of the target by NIS 3 billion, which means the cuts described below are not final. One way the government could make up that shortfall, and potentially more, is if the Histadrut labor federation agrees to suspend public-sector raises. That alone would save the government NIS 3.5 billion a year.

Meanwhile, the Finance Ministry is proposing a blanket cut of 2% from all ministerial budgets - excluding defense - to cover the cost of coalition agreements reached by the new government under Benjamin Netanyahu. That aside, the treasury's budget proposal delivered yesterday almost entirely spares the education budget from cutbacks. Several sectors would suffer under the budget proposal, if accepted as is, including career army officers and women.

Among other things, in order to rein in spending the Finance Ministry proposes voiding the Supreme Court ruling last week in favor of recognizing day-care costs for tax purposes. Voiding this ruling would require legislation.

The cabinet will be discussing the budget, and approving the section for each ministry separately, during a marathon meeting next Tuesday.

The Defense Ministry alone is in line for NIS 46.5 billion in 2009, which will rise to NIS 48.5 billion in 2010, but the expectation had been higher. The ministers can expect bitter opposition from the defense establishment. The defense mission in Paris will be canceled and the mission in New York will be cut back and moved to Washington, for example.

Education has been budgeted nearly NIS 31 billion this year, and NIS 32 billion for 2010. The Health Ministry has been allocated NIS 16.4 billion this year, NIS 18 billion for next year. Compare those figures with the payments Israel will be making on its national debt. Interest payments alone come to NIS 35.4 billion in 2009, rising to NIS 38 billion next year.