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Bowing to the wave of public criticism, Prime Minister Benjamin Netanyahu ordered the Treasury on Thursday to nullify the proposed budget cuts which will likely impact the weaker sectors of society.

On Sunday, Netanyahu will hold consultations with officials from the Finance and Health Ministries over the proposal to charge NIS 50 for each day a patient is hospitalized.

"There will be no cuts in the stipends for the physically challenged, the elderly, and Holocaust survivors," the prime minister said Thursday morning. "A 20 percent cut for all children stipends will remain, including the stipend for each second child and up."

Histadrut labor federation chairman Ofer Eini threatened Thursday to topple the Netanyahu government if serious changes are not made to the budget.

"If the budget's fundamentals are not different and cuts against the weaker classes are not taken out, there will not be a government," Eini said during a closed meeting with senior treasury and Likud officials.

He said he would propose to Labor Chairman Ehud Barak to remove the Labor Party from the coalition if the budget is brought to Tuesday's cabinet meeting in its current form.

Education Minister Gideon Sa'ar on Thursday criticized the Treasury's proposed budget cuts as injurious to the country's school and higher education system.

"The proposed decisions that were submitted to the ministers gravely harm the education and higher education systems," Sa'ar said. "The shortages in the education budget will reach close to NIS 1 billion, in addition to the serious cut in higher education and the harm done with regard to high tuitions. These proposals are unacceptable and nullify the ability to foment the necessary changes in the system."

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 Wednesday 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 budget proposals sparked a wave of angry responses from politicians in both the coalition and the opposition as well as non-governmental welfare organizations. "The cuts created thousands of newly poor," said the director-general of the National Insurance Institute, Esther Dominissini. "This is a serious mistake at a time when the public is apprehensive about its social welfare. The state of Israel is simply moving backwards."

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.