Closing the Hole in the Budget

Netanyahu's Plan: NIS 27 Billion in Cuts, Ban on Strikes in Essential Services

Draft of biannual budget, which will be presented to the new government once it is formed, seeks to abolish Israel's Labor Courts and raise VAT on fruits and vegetables, but will not raise taxes or institute new taxes.

Senior officials have drawn up a plan that would cut the next biannual budget by NIS 27 billion, with NIS 9 billion trimmed in 2013 and a further NIS 18 billion going by the wayside the following year.

The plan, to be presented to the new government once it is sworn in, was formulated in the past three months, and will also forbid strikes in essential services and cancel the Labor Courts.

Apart from the cuts, the plan does not call for new taxes or tax raises, but rather opts for the annulment of tax exemptions, thus generating an income of at least NIS 5 billion in each of the next two years.

The officials behind the plan include Harel Locker, director-general of the Prime Minister's Office, Eugene Kendel, head of the Economical National Council at the Prime Minister's Office, and Uri Yogev, former head of the budgets department at the Finance Ministry.

The officials recommend a NIS 2-3 billion cut in the defense budget in 2013, and a further NIS 3-4 billion cut in 2014, based on the assumption that Egypt and Syria no longer pose an immediate to Israel, thus leaving Iran as the only serious threat.

One of the officials told Haaretz that based on former Prime Minister Ehud Olmert's statement, the government had already invested NIS 11 billion to deal with Iran in 2012.

The officials formulated the plan according to Prime Minister Benjamin Netanyahu's directive not to raise taxes in 2013 and 2014. The crisis at the Tax Authorities' coffers will be remedied by annulment of existing tax exemptions on the financial market, worth NIS 4 billion annually; advanced study funds, worth another NIS 4 billion annually; the annulment of VAT exemptions on fruits and vegetables, expected to raise income by NIS 2 billion annually; and the annulment of VAT exemptions in the southern resort city of Eilat.

The officials believe it will be easier to struggle against the various segments of society who benefit from these exemptions after the establishment of the new government, taking into account that most of the parties will support the move.

The officials also focused on structural changes and reforms. Two of these have the potential to stir up severe opposition: A ban on strikes in essential services, while establishing a procedure for arbitration in such cases, and the complete canceling of the Labor Court. The Histadrut labor federation is expected to use all its power to oppose these last moves.

Steinitz: 'Significant cuts in the defense budget'

Finance Minister Yuval Steinitz said on Monday that the new budget would require "moderate but still significant cuts" in the defense budget. Speaking to Reuters, Steinitz added that there are no plans to further raise taxes in order to hit a deficit target of 3 percent of economic output.

Some 20 percent of Israel's yearly budget is directed to the Defense Ministry. Steinitz said that is one area "that we will have to make some moderate but still significant cuts is the defense budget, I assume. It is not easy but we did it in the past."

Steinitz spoke to Reuters during a stopover in New York, returning from Boca Raton, Florida, where he spoke on Sunday at a fundraising dinner for Israel Bonds. The event pulled in a single-evening record $230 million in sales to retail investors and Israel supporters. Separately, Israel's government sold $2 billion worth of 10-year and 30-year U.S. dollar-denominated debt on Monday.

Asked if he would continue as finance minister in the next government as well, Steinitz replied: "It is quite probable that I will maintain the current position. But it is also possible that I will have another capacity."

Reuters
Bloomberg