Treasury Seeks to Slice Defense Spending by NIS 3B

As expected, Defense Ministry officials vehemently reject the idea of any cuts in military spending.

The Finance Ministry is demanding deep cuts in the defense budget for the 2009 and 2010 state budgets, in the neighborhood of NIS 2 billion to NIS 3 billion. This would mean departing from the path laid down by the Brodet Committee, which in 2007 recommended increasing defense spending every year over a 10-year period.

The treasury seeks to reduce allocations for Operation Cast Lead, overriding a resolution approved by the cabinet of Ehud Olmert, as well as cutting other allocations promised to Defense Minister Ehud Barak by the previous prime minister.

As expected, Defense Ministry officials vehemently reject the idea of any cuts in military spending.

Advisers to Prime Minister Benjamin Netanyahu support a reduction in the defense budget, saying that without reducing the largest single source of state expenditures, it will be very hard to build a viable national budget.

Finance Ministry officials, meanwhile, say that if defense spending is not cut it will be that much harder to persuade other ministries to agree to reductions in their own budgets.

Also standing firm against budget cuts or their equivalent in other areas is the Histadrut labor federation, which is conducting two-track talks with the Finance Ministry. Histadrut chairman Ofer Eini has been meeting regularly with Netanyahu and Finance Minister Yuval Steinitz, while lower-level teams of treasury and union officials negotiate the numbers.

Finance Ministry officials are convinced that tax waivers must be scrapped, starting with the tax-free status enjoyed by employee continuing-education funds, otherwise known as kranot hishtalmut. They also want to freeze the salaries of government workers, if not actually reduce them. Either measure would fatten state coffers by about NIS 3 billion.

The treasury has pretty much given up on taxing the funds, in light of Eini's intransigence on the matter, but officials say that if they can put together an attractive enough package, they hope the union will eventually agree to maintaining public-sector salaries at their present levels, at most.

Finance Minister director general Yoram Ariav is to present a review of the national economy at today's cabinet meeting. He'll be telling the ministers that the treasury expects the economy to contract by 1%-1.5% in 2009 and to resume positive growth, of just 1.5%, in 2010. In 2008, for the sake of comparison, growth was 4%. The budget deficit is expected to hit a record NIS 50 billion this year.

Not so long ago, in October 2008, treasury economists were still predicting 3.5% growth for 2009.

Today's cabinet budget discussion is conceived as the first of three such sessions, with the second scheduled for next week. At the third, in mid-May, the ministers are expected to approve the budget for 2009 and 2010. It will then go to the Knesset, which will have until July 15 to pass it.