Israeli Government Approves Budget After Spending Concession to Ministers

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Finance Minister Moshe Kahlon (L) with Prime Minister Benjamin Netanyahu in the Knesset, July 27, 2015.Credit: Emil Salman

Every ministry will suffer cuts of 0.5% this year and 4% next year as the price for winning the support of rebel ministers and getting the 2015-16 state budget approved by the cabinet.

After a marathon session, the cabinet approved spending packages of 329.5 billion shekels ($86 billion) for 2015 and 343.3 billion shekels for 2016, as well as the Economic Arrangements Law — a package of reforms that accompanies the budget. The approval came at 4 A.M. Thursday.

“As we promised, we passed the state budget this morning without any opposition. That attests to the cohesion of the coalition and the cohesion of the government,” Prime Minister Benjamin Netanyahu said after the vote.

Netanyahu and Finance Minister Moshe Kahlon had been battling for weeks to win coalition support for the budget inside a constricted timetable. They had to delay the cabinet meeting several times until this week.

The 2015 budget was never approved by the Knesset before it dispersed for the March 17 election and was folded into a two-year spending plan that will go to the Knesset next month for approval.

But Netanyahu and Kahlon failed to win over one key minister, Defense Minister Moshe Ya’alon, who asserts that the 56-billion-shekel basic budget slated for the army next year is at least 6 billion shekels too little.

Ya’alon, who has been fighting efforts to cut defense spending and two government reports in two weeks urging military streamlining, was the only minister to abstain, while all other 19 ministers and Netanyahu voted in favor.

To get cabinet backing and keep the deficit to no more than 2.9% of gross domestic product, Kahlon had to rescind a series of planned budget cuts and agree to extra spending demanded by Economy Minister Ayre Dery (Shas), Education Minister Naftali Bennett (Habayit Hayehudi) as well as Likud ministers Gilad Eran (Public Security), Silvan Shalom (Interior) and Miri Regev (Culture and Sports).

The 0.5% cut in the 2015 budget was an entirely new initiative and will require ministries to find 500 million shekels in savings. In 2016, the treasury had already slated a 3% across-the-board spending reduction, so the extra percentage point will require savings of 1 billion shekels.

Kahlon and treasury officials said the budget and arrangements law were filled with provisions aimed at lowering the cost of living, solving the problem of skyrocketing home prices, reducing income gaps and addressing low labor productivity. Netanyahu promised that the efforts would help deliver economic growth this year or next of 4% annually.

“In constructing this budget we preserved the budget framework and a deficit target of less than 3% together with major reforms that will address structural changes in the economy, the cost of living, an inequality reduction in allocating national resources, and a productivity increase,” said Shai Babad, director general of the Finance Ministry.

During the deliberations, Habayit Hayehudi and Likud ministers fought the treasury's plans to cut budgets for West Bank settlements and eliminate the Jewish Identity Administration that Bennett set up two years ago to encourage Jewish values. They also fought back plans to end special grants, like one dating from 2009 that compensates settlers for a building freeze.

In the end, the Jewish Identity Administration was saved as were the special grants, and the settlements budget was increased by 340 million shekels.

Dery, meanwhile, reaped extra funds for the Economy Ministry, including an enlarged 1.45-billion-shekel appropriation for the Chief Scientist’s Office, which funds research and development and other programs for the high-tech industry.

Other key demands by Dery were put on hold: sharp reductions in water and electricity rates for Israel’s lowest income groups, and a fare cut for public transportation. A joint team from the finance and economy ministries will examine the issue and report back in a month.

Bennett won 167 million shekels for his program to reduce classroom crowding, 75 million to encourage high school students to take the toughest mathematics program, and 530 million to pay a second teacher’s aide in half the nation’s preschool programs. All told, this will raise the Education Ministry’s budget past 50 billon shekels — for the first time.

But a plan for the government to aid poorer local authorities’ schools at the expense of wealthier ones collapsed in the face of opposition from some Likud ministers and the wealthier local authorities. A committee will study the issue instead.

Erdan’s Public Security Ministry received a supplement of 1.7 billion shekels, while Regev’s Culture and Sports Ministry received an extra 436 million.

With reporting by Avi Bar-Eli

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