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"If the joint team that you appointed, with representatives from the treasury, the Bank of Israel and the socioeconomic council in the Prime Minister's Office submits an irrational plan for a safety net, the treasury will not submit it to the cabinet," Finance Minister Roni Bar-On told Prime Minister Ehud Olmert on Thursday during their meeting with Knesset whips to discuss the treasury's economic rescue plan. In response, Olmert said: "So I will submit [a plan]."

At the meeting the treasury presented a three-pronged plan, calling for investment in national infrastructure, financial aid and a "safety net" for provident fund savings. Much of the meeting focused on the last element, though only the first two parts of the plan will be put to a Knesset Finance Committee vote today.

The treasury economists who came up with the idea of creating a safety net for Israel's provident and pension funds but who changed their minds over the course of last week were its fiercest critics in Thursday's meeting. They argued that such a safety net does not exist in any Western country, that pension savings in Israel have been hit less hard than those in other countries and that it was a regressive measure that would benefit the wealthy at the expense of the poor.

Bar-On said that the Organization for Economic Cooperation and Development, which Israel seeks to join, will be discussing the issue of pension savings in the near future, and that Israel would find it difficult to explain why it has provided a safety net in the event the plan is approved.

Unholy alliance

Senior treasury officials expressed surprise at the alliance they say Olmert has forged with opposition head and Likud chairman Benjamin Netanyahu on the safety net issue. They claimed that Olmert and Netanyahu were supporting each other over it to hurt Foreign Minister and Kadima chairman Tzipi Livni, while knowingly undermining the state budget.

In the absence of the governor of the Bank of Israel, Stanley Fischer, who was abroad on Thursday, deputy governor Zvi Eckstein attended the meeting in his stead. He expressed full support for the treasury's plan, which he said was a very inexpensive plan that takes into consideration all of the problems of the Israeli economy. He said that if the plan is expanded further, the central bank will withdraw its support for it.

Netanyahu said the plan lacks tax cuts, which could encourage consumer spending. State budget director Ram Belinkov said in response that the state's tax revenue outlook for 2009 is low, and the Finance Ministry does not have alternate sources of funding. Netanyahu, who did not have a plan of his own to put forward, said that in principle he supports all three parts of the treasury plan and promised that Likud would support it in today's Finance Committee vote.

Defense Minister and Labor Party chairman Ehud Barak complained that in drafting its plan the treasury did not consult Histadrut labor federation chairman Ofer Eini or Israel Manufacturers Association chairman Shraga Brosh. Barak walked out of the meeting about 30 minutes after it began, to the surprise of those who remained.

Livni said at the meeting that the cabinet must give immediate approval to the infrastructure and financial assistance parts of the plan. Regarding the safety net, she asked the treasury for more details about the scope of the public's exposure to losses and the demographics of the population to which protection would be extended under each of the models being proposed.

The vision thing

"The reform of the pension and provident funds was carried out without sufficient regulatory support, so what was not done then will have to be done now," Livni said.

"The treasury's plan is full of holes and lacks a broad vision regarding the situation of the Israeli economy," Labor MK Shelly Yachimovich said.

Treasury officials are hoping that the Finance Committee supports its infrastructure and financial support plans. It is asking the committee to approve a NIS 15 billion investment in infrastructure projects.