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How did a NIS 17.5 billion budget cut in government activity become a NIS 6 billion cut?

When the treasury calculated the expected gap between the desired deficit (3 percent of the gross national product, or NIS 15 billion) in the 2004 budget and the actual deficit, it turned out that it was necessary to cut the budget by no less than NIS 17.5 billion - an enormous sum.

Treasury officials were horrified and convened a consultation meeting. The first victim of the cuts was the promise to reduce value added tax from 18 percent to 17 percent. That is a great deal of money, since 1 percent of VAT is NIS 2.5 billion (NIS 2.1 billion in VAT revenues and NIS 400 million in income tax revenues from the tax non-profit organizations pay on wages).

The second victim was the promise to limit the 2004 deficit to 3 percent, with the new target being set at 4 percent. This difference of 1 percent meant that the budget cut could be reduced by NIS 5 billion, so that now instead of NIS 17.5 billion in cuts, Finance Minister Benjamin Netanyahu would have to submit a plan for just NIS 10 billion in cuts.

Even that NIS 10 billion cannot be called "cuts," because NIS 4 billion of them will be executed via the activation of various mini-clauses of the economic plan that are not cuts at all, but rather the raising of taxes and one-time transfers that have no connection whatsoever to the reduced involvement of the government in the economy - despite Netanyahu's assertions. NIS 1.5 billion will be transfered as a one-time payment from the Karnit and Avner government companies (which handle compulsory car insurance) to the state coffers. This is money that has accumulated in these companies' coffers due to over-payments collected from us, the drivers. Instead of reimbursing us by lowering compulsory insurance premiums by 5 percent, Netanyahu is taking the money in order to finance the budget.

NIS 350 million will come from a tax increase on the employment of foreign workers - from 8 percent to 20 percent - in order to make their employment financially unfeasible. This move is correct, since its intention is to bring Israelis back into the work force, but its significance is more taxes instead of budget cuts. The chances, by the way, that this proposal will be approved by the Knesset are very slim due to the clear interests of the farmers, the contractors, the industrialists and the manpower companies that earn a lot of money on the backs of foreign workers.

NIS 350 million more will be obtained via the cancellation of tax benefits on early retirement. The army is worried about the reduction of the net pensions of Israel Defense Forces (IDF) personnel who retire at age 43-44, but even more worrisome is the harm to those who have been paying into contributory pensions all their working lives (unlike career army officers who have non-contributory pensions), have paid taxes on part of those deductions, and are about to retire at age 60 instead of at age 65. Should these people have to pay double taxes? That is a clear (additional) injustice against members of the Histadrut Labor Federation's pension funds.

NIS 300 million will come from the "money laundering" program. The treasury will offer companies that have money overseas to bring it back to Israel, pay a 15 percent tax on it, and put it into action here. Later, Income Tax Commissioner Tali Yaron-Eldar will offer a money laundering plan to private individuals who have money abroad.

NIS 260 million will be obtained from revenues from a more efficient use of land - charging money for the use of land in "Priority A" development regions such as the West Bank, the Golan, the Negev and the Galilee. Today the use of such land is free and is therefore being improperly and inefficiently utilized.

NIS 250 million will be obtained from hospitals run by the Clalit Health Maintenance Organization and from the streamlining of the health services. Sounds wonderful, but in a situation in which the health services system is suffering from a chronic deficit, how will it be possible to take such a sum from it?

NIS 200 million will come from raising the price of water by 15 agarot per cubic meter for industrial and residential use. No price hike for the farmers. That is another scandal in this area, stemming from the fear and self-deprecation exhibited by Netanyahu and the treasury toward Prime Minister Ariel Sharon, who effectively heads the agricultural lobby.

Thus the general public and industry will pay more and more for the water they use, while farmers continue to get water at half price.

All the rest, NIS 800 million, is scattered among various revenue clauses. This means that the real budget cuts will amount to NIS 6 billion: NIS 3 billion from defense (provided Sharon approves), NIS 2.4 billion via an across-the-board cut in civilian budgets, and another NIS 600 million in specific cuts. That is how the frightening NIS 17.5 billion figure became a much more modest NIS 6 billion.