Finance Minister Yair Lapid handed the Knesset his draft budget for 2013-14 Tuesday, and was met with a storm of criticism from both coalition and opposition lawmakers who vowed they would amend the most painful spending cuts and tax hikes it contains.
Lapid himself was unapologetic for the austerity budget, which he said was the only way to close a NIS 40 billion fiscal hole created by spending commitments undertaken by the previous government and a shortfall in tax revenue.
He defended his credentials as someone who cares about the poor and middle class. “What we have done isn’t the most popular undertaking, but it is the most responsible thing we could have done,” he told the Knesset Finance Committee.
“My heart bleeds for every single mother and every child under the poverty line. Taking care of people like them is our job. But the thing we most need is a strong country. For that we need a strong fiscal framework.”
But even coalition lawmakers were talking about how they would remove some of its most unpopular provisions. MK Gila Gamliel (Likud ), who as coalition whip on the Finance Committee is supposed to ensure lawmakers back the budget, reeled off a list of items she said would never make it past the committee, including the proposed 3.5% tax on people upgrading to a new and bigger home, plans to have housewives pay National Insurance and health tax, and the 1.5 percent increase in income tax rates.
Shelly Yacimovich, the Labor Party and opposition leader, described the proposed Economic Arrangements Law, a package of legislation that accompanies the budget every year, as a hodgepodge of treasury wish-list items without any overriding goal or purpose. “Previous Arrangement Laws had a certain internal logic, even if it was a logic that was destructive, conservative in the extreme and a source of inequality,” she said. “This time, it looks like a collection of proposals that had been gathering dust in the drawers of treasury officials.”
Referring to the one percentage point increase in the value-added tax, to 18%, that the Knesset approved, she warned Lapid: “Next time things like that simply won’t happen. It shows complete disregard for the committee. We’re not a rubber stamp.”
MKs Moshe Gafni (United Torah Judaism) and Yitzhak Cohen (Shas) took umbrage over remarks by Finance Committee Chairman Nissan Slomiansky (Habayit Hayehudi) about easing the burden on Israel’s working population by imposing heavier costs on the ultra-Orthodox.
But Michael Sariel, who heads the Finance Ministry’s state revenues division, said the government is determined to force Haredim and others into the labor market. “The only way to increase the standard of living is by increasing per-capita GDP by increasing the labor force participation rate, labor productivity by reforms, increased competition and innovation.”
The 2013-14 spending package has proven to be political headache for Lapid, who led his Yesh Atid party into a strong second-place finish in the January election on promises to help a financially strapped middle class. Instead, as finance minister, he has had to try to convince the public to absorb the blow of higher taxes and less government spending, or risk creating a financial crisis.
Tuesday he warned as much, noting that Israel’s domestic credit rating had been cut. Failure to puts its fiscal house in order would force the treasury to pay higher rates of interest to borrow money, pulling more resources away from health, welfare, education and defense.