Finance Chief Makes Deals With Ministers as Budget Talks Begin

But Defense Minister Moshe Ya’alon will probably vote against the document, as will ministers in Naftali Bennett's Habayit Hayehudi party.

Health Minister Yaakov Litzman and Finance Minister Moshe Kahlon.
Emil Salman

The cabinet begins a marathon two days of deliberations on the 2015-16 budget Wednesday, with Finance Minister Moshe Kahlon having won over opponents like Economy Minister Arye Dery and Social Affairs Minister Haim Katz with spending promises.

But the military will be getting less than it wanted after Kahlon and Prime Minister Benjamin Netanyahu agreed to delay implementation of the Locker committee recommendations on defense spending. That would have given the military a base budget of 59 billion shekels ($15.6 billion); instead it will get 57 billion this year and 55.3 billion in 2016.

Defense Minister Moshe Ya’alon, who had called the Locker recommendations impossible, has not spoken publicly on how he plans to vote but is expected to oppose the entire treasury spending package.

The Locker panel had called for a 59-billion-shekel budget but on condition the military agrees to a long list of spending reforms. Defense officials have been asking for a base budget — before revenue from arms sales — of 62 billion shekels.

Ministers are free to vote as they wish on the budget in the cabinet, but once it reaches the Knesset they must support it. With the government holding a slim parliamentary majority of 61 to 59 seats , Netanyahu and Kahlon can’t be sure they have the Knesset votes. The prime minister has thus issued a warning to coalition lawmakers.

“Israel will have a budget because otherwise there won’t be a government for Israel and our economic and security situation will deteriorate,” he said. “I am counting on the collective responsibility of all the ministers.”

On Tuesday, Kahlon won Dery’s support for the spending package by agreeing to reduce electricity and water rates by 15% to 20% for lower income groups, defined as households earning no more than 7,000 to 8,000 shekels a month. Kahlon also agreed to cut public transportation fares by 15% in 2016 for all riders.

Dery, whose ultra-Orthodox Shas party has sought to brand itself as the party of the poor and disenfranchised, had said he would oppose the budget unless the government agreed to exempt basic food products from the 18% value-added tax, a measure Kahlon and the treasury opposed.

Meanwhile, Katz threw his support behind the budget after Kahlon agreed to add 1.16 billion shekels to the Social Affairs Ministry budget. That was far less than the 3.26 billion Katz had originally sought, but it was the biggest increase the ministry has ever been awarded.

Likewise, Transportation Minister Yisrael Katz dropped his opposition to the budget after Kahlon agreed that an across-the-board cut in spending he plans in 2016 wouldn’t apply to public transit.

Against that, Naftali Bennett, the education minister and Habayit Hayehudi party leader, said he would vote against the 2015-16 spending package, as would the party’s two other ministers, Justice Minister Ayelet Shaked and Agriculture Ministry Uri Ariel.

Bennett opposes the 1-billion-shekel cut slated for Israel’s schools and institutes of higher education. Treasury officials said right-wing Habayit Hayehudi is dissenting because Netanyahu backed out of promises made in the coalition agreement for extra funding for state-religious schools and the settlements.

Public Security Minister Gilad Erdan also said he would vote against the budget after Netanyahu failed to come through with the extra spending he promised for policing.

Meanwhile, the socioeconomic cabinet on Tuesday approved a package of economic reforms that appear in the Economic Arrangements Law that accompanies the budget.

Key among them were the so-called Sheshinski II recommendations, which set a uniform 5% royalty rate on all natural resources extracted in the country, as well as a windfall profit tax. They are expected to add 500 million shekels annually to government revenues.

The Sheshinski II proposals, named for Eytan Sheshinski, the economist who chaired a special committee, do not apply to the oil and gas industry. Dery, who is also Negev and Galilee development minister, opposed the measure, saying it would cost jobs in the Negev, where Israel Chemicals, the main company affected by the reform, is based.

The socioeconomic cabinet also cleared the so-called cornflakes law, which allow parallel imports of dry food that don’t require extensive health inspections. Parallel imports would allow more than one business to import the same product, creating more competition and lowering prices.