More Cuts, Handouts Revealed as Knesset Budget Debate Starts

Cabinet backs spending cut, zero-VAT on public transportation; treasury details for the first time list of budget handouts needed to win lawmakers' backing.

Arye Dery.
Alex Kolomoisky

A day before the Knesset was slated to begin three days of deliberations on the 2016 budget, the cabinet agreed to another across-the-board spending cut and 11th-hour handout of extra 290 million shekels in spending on politicians’ pet causes. Over powerful objections from the treasury, the government also agreed to support recently-appointed Periphery Minister Arye Dery’s proposal to eliminate the 17% value-added tax on public transportation. They were the final details to be tied up after the finance and defense ministries agreed at the end of last week on the size of the defense budget and on army spending reforms.

Officials, including Bank of Israel Governor Karnit Flug, tried Saturday night to convince Dery to back off from the plan, which they fear will set a precedent for differential VAT rates and create needless extra work for tax officials. But Dery rejected alternatives, including a proposal to reduce fares by 30% to 50% on routes in Israel’s far north and south, a 50% reduction for youth and a top ticket price of 25 shekels ($6.45). An alternative plan offered him was for a nationwide fare cut of 14.5%. Dery was reportedly concerned that any reduction of transportation fares be enshrined in law, as a VAT exemption might be reversed later. Unless treasury officials succeed before Wednesday night in changing his mind, the VAT exemption will go into force on January 1.

“I’m glad the decision was made,” Dery said. “The decisions will help mainly the weakest segment of the population and those we need to help the most.”

Meanwhile, the cabinet approved a 0.7% across-the-board cut in spending, which Amir Levy, the head of the treasury’s budget division, said was needed after a series of unrelated events in the last few weeks created new costs and reduced revenues. They include the need to spend 110 million shekels on upgrading security on buses following the wave of stabbing attacks since early October, and a 0.5 percentage point reduction in the interest rate the Construction Ministry collects on loans to people with mortgage rights. The latter will deprive the government of 200 million in revenues next year, Levy said. It was the third time the government has approved across-the-board cuts in the draft 2016 budget, after reductions of 3% and 1.5%.

Meanwhile, Knesset members and the public for the first time received a full accounting of the budget handouts the treasury made in order to win enough votes for the budget. The Finance Ministry was required to detail all of them to the Knesset Finance Committee before it votes on the budget, under orders from Attorney General Yehuda Weinstein. The handouts, which do not include 4 billion shekels of spending commitments made as part of the agreement forming Prime Minister Benjamin Netanyahu’s coalition government last spring, add up to 613.4 million shekels, including 290 million agreed to over the past few days. These handouts include 37 million shekels sought by Yuli Edelstein, the Knesset speaker and Likud lawmaker, for mikvehs (Jewish ritual baths) and 33 million shekels sought by David Amsalem, the Likud finance committee chairman, for neighborhood renewal projects.

The Knesset debate runs from 10 A.M. to 8 P.M. Monday and Tuesday, and continues Wednesday until the second and third readings of the budget and Budget Arrangements legislation. Opposition lawmakers are vowing to filibuster and have presented some 30,000 reservations to the budget and Arrangements Law. The government has only a slim 61-seat majority to see the threat off.