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Prime Minister Benjamin Netanyahu has seen the budget draft prior to its publication and approved the controversial cuts proposed in it, sources from his bureau said yesterday. One source explained Netanyahu did this "because he knew problematic clauses can be taken out at a later stage."

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.

"Netanyahu did not bow down to pressures," another source said. "This is the fifth budget that he is filing and he knows very well the ritual of putting in cuts which are later taken out."

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 - one of the more controversial clauses to the budget. Also yesterday Netanyahu's bureau announced it had ordered the treasury to nullify some proposed cuts which will likely impact the weaker sectors of society.

"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."

The prime minister's associates said he is hoping to reach an arrangement with Histadrut labor federation chairman Ofer Eini. This agreement, one associate said, would impose a freeze on wages in the public sector while lifting cuts which could potentially harm poor populations. Eini threatened yesterday to topple the Netanyahu government by acting to prompt Labor to leave Netanyahu's government if serious changes are not made to the budget.

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 percent (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.

"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 is quoted as saying 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 also criticized the Treasury's proposed budget cuts as injurious to the country's school and higher education system.

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. According to the draft budget, 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 two percent from all ministerial budgets - excluding defense - to cover the cost of coalition agreements reached by the new government under 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.