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The Finance Ministry is to present the cabinet with a plan on Tuesday to cut NIS 14 billion from the two-year budget for 2009 and 2010.

The cuts proposed so far will reduce the budget by about NIS 7 billion for both years together. The remaining NIS 7 billion, the treasury expects, will come from three sources.

An agreement being hammered out with Histadrut labor federation chairman Ofer Eini over a freeze in state employee salaries could save as much as NIS 3.5 billion in each of the two years.

Increasing government spending by just 1% could contribute an additional NIS 2.5 billion per year, while increasing VAT from 15.5% to 16% would add another NIS 1.9 billion or so every year.

A full NIS 3 billion of the NIS 7 billion in cuts already planned would come from the defense budget, with the remaining NIS 4 billion coming from the health, education and welfare budgets.

The Defense Ministry has already launched an attack on the treasury plan. Defense Minister Ehud Barak called to the colors the entire top rank of the defense establishment, including Israel Defense Forces Chief of Staff Gabi Ashkenazi.

If Prime Minister Benjamin Netanyahu accepts even some of Barak's arguments, additional cuts will have to come from social welfare budgets. Either that or taxes will have to rise, and Netanyahu is dead set against raising taxes.

The Finance Ministry is hoping to obtain Eini's agreement to freeze public-sector wages. Up to now the labor chief has been fiercely against any such agreement.

Eini is showing signs of softening, even though many public-administration experts argue that the measure would hurt a sector with low wages overall and further reduce the quality of public services.

The cuts planned by the treasury are the deepest seen here in recent years, even outstripping the cuts made during the last economic crisis in 2001-2003. The plan received a rather unfriendly welcome from the public when it was revealed yesterday.

The assumption is that some of the items will disappear before or during the next cabinet meeting, while others will be struck from the draft either in the full Knesset or in committee.

Cabinet ministers from Likud, Shas and Labor, as well as Deputy Health Minister Yakov Litzman (United Torah Judaism) harshly criticized the plan. Joining the opposition of Education Minister Gideon Sa'ar were fellow Likud ministers Moshe Kahlon and Gilad Erdan.

Netanyahu and Finance Minister Yuval Steinitz, who worked on the plan and approved it, announced yesterday that the stipends for retirees, people with disabilities and Holocaust survivors would not be touched, but that child allowances would be.

Netanyahu and Steinitz said child allowances had already been increased significantly, although the truth is that allowances for the first child in a family, as well as for the fifth and any that follow, have not been increased at all.Health officials were astonished yesterday to hear plans to levy a NIS 50 per diem copay for hospitalizations, as were staff at Physicians for Human Rights-Israel, the Adva Center and the Association for Civil Rights in Israel. "The proposal represents a cruel continuation of the trend toward passing the national responsibility for health from the government to private households, a source at one of the organizations said yesterday.

Prof. Gabi Bin-Nun, from the Department of Health System Management at Ben-Gurion University of the Negev and a former deputy director general for health economics at the Ministry of Health, said: "The proposal shows that apparently there is no limit to the treasury's fertile imagination when it comes to raising money from the consumers of health and welfare services."