Across-the-board Cuts Isn't the Way to Go

The right thing to do would be to cut NIS 800 million from the defense budget given the strategic improvement in our security situation: Iraq has ceased to constitute a threat, and the Syrian army is rusty.

It has become par for the course - 20 days without a budget, and life goes on as usual. True, government ministries can't take on a single new employee, can't sign contracts, can't implement projects, can't pave roads, can't purchase medical equipment, can't pass on funds to cultural and welfare institutions, and can't put growth-incentive plans into practice - but no one really cares. The public is apathetic, as are the government and the Knesset.

The cabinet vote on a 3 percent cut to the acquisitions budgets of all ministries has been postponed to next week, and Knesset Finance Committee members (from both the opposition and coalition) are sabotaging treasury proposals to boost revenues.

The need for these two amendments arose due to two large holes that opened up in the budget - one on the revenues side and the other on the expenditures side. The revenues side hole opened up due to wage agreements with the Histadrut labor federation, under which the treasury waived its intention to cancel exemptions and breaks to the tune of some NIS 1.3 billion. In addition, the Knesset Finance Committee has no intention of approving cancellation of tax credit points for a spouse who doesn't work (NIS 450 million), nor will it approve revocation of Eilat's VAT-free status (another NIS 450 million). The hole on the revenues side, therefore, totals NIS 2.2 billion.

To solve part of this problem, the treasury already has imposed an additional tax on cigarettes and diesel (NIS 400 million), which closes the deficit to NIS 1.8 billion. To fill the gap, the treasury plans to impose additional decrees, such as cancelling various tax exemptions and raising taxes on luxury items such as all-terrain vehicles and alcoholic beverages.

The situation on the expenditures side is also problematic. The hole there opened up due to the coalition agreements with Labor (NIS 600 million) and United Torah Judaism (NIS 290 million). In addition, there was the agreement on an additional budget for the chief scientist and a security body (NIS 350 million), while Finance Minister Benjamin Netanyahu plans to meet a number of demands from Likud lawmakers (NIS 160 million), leading to a NIS 1.4 billion total.

Some NIS 600 million remains in the budget reserve, which means the cabinet will be asked to vote on a cut of some NIS 800 million next week.

The right thing to do would be to cut NIS 800 million from the defense budget given the strategic improvement in our security situation: Iraq has ceased to constitute a threat, and the Syrian army is rusty. Furthermore, NIS 800 million is a cut that can be absorbed by the huge defense budget.

To this end, Netanyahu, along with treasury budgets director Kobi Haber, should have proposed four alternatives to the prime minister - local authorities, elderly allowances, Gaza Strip evacuees compensation, and the defense budget. Prime Minister Ariel Sharon's political adviser would explain to him that the local authorities couldn't be touched because the Likud Central Committee would go crazy; the cabinet secretary would say that the elderly couldn't be touched because the public would rebel; and the Prime Minister's Office director general would say that not a single cent could be deducted from the Gaza Strip compensation, because the disengagement was already going to be difficult. And later in the week, Netanyahu would have to "organize" pressure from ministers who would explain to Sharon just how impossible it would be to cut their ministries' budgets. Ehud Olmert would explain why exports couldn't be undermined; Limor Livnat would speak about education; and Benjamin Ben-Eliezer would talk about the importance of infrastructure. In the end, therefore, just one solution would remain - a cut in defense spending.

Instead, Netanyahu and Haber went to Sharon with a proposal that was neither here nor there - a cut of NIS 500 million to the defense budget and an across-the-board 1 percent cut among the other ministries. Sharon saw the term "across-the-board," and his eyes lit up: Here's the solution - forgo the NIS 500 million cut to defense, but increase the "across-the-board" to 3 percent.

Indeed, everyone knows that an across-the-board cut is a bad thing. It is the worst thing from an economic and social perspective. It makes no distinction between priorities; everything is the same. Therefore, the result will be cuts to development and investments, unplanned cuts, cuts that are bad for the economy, growth and employment. But everyone also knows that the ministers are willing to have one of their eyes gouged out provided that their colleagues have one gouged out too.