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Ra'anan Dinur, the director general of the Prime Minister's Office, is taking on the treasury: For the first time the PMO is taking an active role in preparing next year's state budget - and is formulating its own detailed plan without the Finance Ministry.

Dinur hinted how he would like to see the 2009 budget, including large investments in education and defense. This would prevent adding any more money to almost all other ministries, which would be forced to settle for moving existing levels of funding around within the ministry.

The very active participation of the PMO in the budgetary process has caused quite a bit of anger in the treasury, and in particular within the Budgets Division. Until now, the treasury has had responsibility for preparing the budget.

This is another step in the policy of Dinur, and his boss, Prime Minister Ehud Olmert, to strengthen the powers of the individual ministries and ministers - at the expense of the treasury. Dinur's plan is to provide much more authority to the ministries, and in particular at the level of directors general and deputy directors general, over the preparation and implementation of their ministry's budget.

Part of the plan is to increase the cabinet's oversight with a change in emphasis - measuring results instead of spending.

Despite the PMO's attempts to stay away from conflict with the treasury, it seems that a crisis is inevitable. The PMO is intervening in issues which in the past were the sole province of the Budgets Division.

The first "shot" in the battle was fired a few weeks ago, when the treasury announced it would not cooperate with the changes.

Last Wednesday, Dinur held a conference to explain his new procedures to senior representatives of all ministries.

The plan, which TheMarker has obtained, was sent to all ministries at the start of March.

The PMO has asked all ministries to prepare a 10-15 page document evaluating their 2008 situation and their budgetary needs for 2009. These documents are supposed to be filed with the PMO by mid-April.

The ministries are expected to set their own priorities, with plans as how to achieve them both in the short and long term.

In addition, they must describe the changes they plan for 2009, based on conclusions drawn from this year's activities. And the ministries must try to find internal sources for future projects.

The next step in the budget preparation process would be a presentation of their programs to Dinur and his staff at the PMO.

Then Dinur will present the prime minister with his summary of the various ministries' situations and requests. Olmert will then set the framework for national priorities, scheduled for the end of June.

In August the 2009 budget will be presented to the cabinet for approval, and then go on to the Knesset for approval by the end of the year.

A new addition to the process will be a discussion in February 2009 on the implementation of the 2008 budget, compared to the original plan.