Israeli Cabinet Expected to Approve New Budget, but With Mass Changes Following Public Outrage

Widespread opposition to proposed austerity measures forces treasury to consider amendments that would soften the budget's effect on taxpayers.

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Prime Minister Benjamin Netanyahu's cabinet is expected to approve the 2013-2014 austerity budget Monday following a marathon discussion of its items, which are expected to include last-minute changes following the severe public criticism of Finance Minister Yair Lapid's economic plan.

The treasury has been busy considering changes that would soften the budget's effect on taxpayers. They include lessening the proposed tax hike on those selling their home and buying a new one.

However, the problem with these and other possible alterations is that the treasury has no intention of increasing the budget deficit any further - above the planned deficit ceiling of 4.65 percent of gross domestic product for 2013 and 3 percent for 2014 - and any such changes would require raising taxes elsewhere.

The Finance Ministry also notified local authorities it was restoring NIS 700 million in support for them in the proposed budget. In response, the heads of the Union of Local Authorities said they would cancel the strike planned for Monday.

After discussing the NIS 388 billion in spending for 2013 and NIS 408 billion for 2014, the cabinet is expected to vote and approve the Budget Law and the Economic Arrangements Law.

On Sunday, the security cabinet held a long discussion on the defense portion of the new two-year budget, but the decision on cuts in the defense budget was passed on to Mondays meeting of the full cabinet. Both the Finance Ministry and Defense Ministry remained firm in their positions on defense spending: The treasury is demanding a NIS 4 billion cut in the defense budget while the Defense Ministry is actually demanding an additional NIS 2-3 billion, as well as funding commitments for beyond 2014 so it can carry out its five-year defense plan. Both sides rejected Netanyahu's proposals for flexibility.

Lapid and senior treasury officials reiterated their warnings that if their proposed defense cuts are not made, there will be a need to make further cuts in health, welfare, education and infrastructure spending. Treasury officials are already preparing proposals of what else to cut and other changes in Lapid's economic plan if the defense cuts are not approved - especially in light of the harsh criticism of the budget proposal from the public, Knesset members and ministers.

After the cabinet approves the budget for 2013-2014, it will go to the Knesset for approval. It must be presented to the Knesset no later than June 10. The Knesset must approve the budget by July 30, and the new budget would take effect as of August 1. Until the new budget takes effect, the state will continue spending this year based on one-twelfth of 2012 budget expenditures per month.

There were small achievements registered by the vehement public protests against Lapid's budget. Yesterday it was publicized that the planned increase in co-payments for doctor visits and other medical expenses, such as bandaging and hearing devices, would be rescinded.

However, the proposed draft of the Economic Arrangements Law includes several pieces of bad news for parents and students: The deep cuts planned for the Education Ministry's budget will lead to the cancellation, or indefinite freeze, of programs intended both to benefit students and reduce the financial burden on middle-class parents, as well as a funding cut for ultra-Orthodox yeshivas.

IDF Chief of Staff Benny Gantz presented the security cabinet with a survey of the threats against Israel at the meeting yesterday. Senior IDF officers told the ministers that while the dangers of a war between Israel and its neighbors have dropped significantly in recent years, other threats, on all the country's borders and from nations farther away, have increased. They explained how a cut in the defense budget would damage the IDF's preparedness in many ways, including training, inventory levels, new weapons systems and maintaining a high standard of manpower. In addition, they said any cuts over the next two years must be made up fully in 2015 - though they did agree that cuts in public sector salaries decided on by the government would also apply to the IDF.

Lapid and the treasury officials told the security cabinet that the defense establishment has fat that can be cut, and in recent years has received generous additional funding over and above the approved budgets. In 2012, the defense budget reached an all-time high of NIS 60.5 billion because the defense establishment had not made itself more efficient as it agreed to, said the treasury officials. In light of the economic situation and the large cuts looming in education, health, welfare and elsewhere, defense must also "share the burden," they said.

A NIS 4 billion cut this year would only return the defense budget to its already extremely high base spending level planned for 2012, as originally approved in the previous two-year budget.

Netanyahu did not intervene in the debate and did not express an opinion, except for a few marginal comments. If the treasury and defense cannot reach an agreement in the wee hours of this morning before today's cabinet session, then Netanyahu will have to leave the matter for the full cabinet and his stance will be crucial.

Israeli Potesters demonstrating against new austerity measures set to be included in the 2013-2014 national budget at a main junction in Tel Aviv May 11, 2013. Credit: Rami Shlush
Israelis protesting against austerity measures in Tel Aviv, May 11, 2013.Credit: David Bachar

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