Prime Minister Benjamin Netanyahu will make the final decision next week in the dispute between the finance and defense ministries over the size of the proposed defense budget, with debate on the 2009-2010 budget scheduled on the Jewish holiday of Lag B'omer (May 12 this year).

Still requiring debate are the defense, education and health budgets.

The Finance Ministry is seeking to trim military spending, while the Defense Ministry wants an increase.

Finance Minister Yuval Steinitz is set to propose a state budget cut of NIS 14 billion. The two major targets in his plan are at least NIS 3.5 billion off the defense budget, and a wage freeze for the public sector, which will save another NIS 3.5 billion.

A meeting held at the finance minister's office in Jerusalem yesterday with a broad representation of top defense and Finance Ministry officials failed to yield any progress.

Steinitz has insistently argued the defense budget must be pared down and the system made more efficient. Defense officials said their demand for information on the proposed cut remained unanswered. They emphasized the threats hanging over Israel, especially Iran, and said they will object to any proposed budget cut to the ministry.

Steinitz plans to meet with all of the ministers with portfolios before the Lag B'omer debate to ensure their backing. He can expect some difficultly from Education Minister Gideon Sa'ar, who vehemently opposes any cuts to his ministry's budget, and from the deputy health minister, Yaakov Litzman, who is demanding an increase in state funding.

The Netanyu-Eini love affair

The Finance Ministry says Histadrut labor federation chairman Ofer Eini has shown signs of willingness to be flexible and has signaled interest in compensation in exchange for the Histadrut's agreement to a public-sector wage freeze. The Finance Ministry plans to offer a benefits package centered around a 2.7% increase in budget spending (instead of the 1.7% that the government approved on Sunday), which spells an additional NIS 2.5 billion to the social ministries (education, health, welfare) in exchange for his agreement to a wage freeze in 2009-2010, and possibly 2011.

But Eini told Steinitz and the heads of the ministry's budget department yesterday he opposes a total of 19 clauses in the proposed economic arrangements bill, in particular those relating to privatization of government bodies and to the expansion of the Wisconsin Plan to fight unemployment. Steinitz plans to respond to Eini this week.

Some of the objections are based on the coalition agreement of last month, in which Eini was a driving force. Eini, for instance, opposes the treasury's plan for a differential increase to old-age stipends, and is demanding instead a uniform increase for all recipients. Eini also objects to the ministry's plan to extend the period of unemployment benefits only for older recipients who are currently entitled to six months' unemployment pay. Eini wants the extension to apply to the young unemployed, who are entitled to less than six months of benefits.

The Histadrut also opposes a series of privatizations planned for the coming year, including privatization of the Merkava tank production line, the Israel Postal Service and partial privatization of Israel Railway (through establishment of a maintenance center in partnership with private enterprise).

According to the arrangements bill, implementation of negative income tax is tied to putting the Wisconsin Plan into practice throughout the country. The Histadrut objects.