Israeli Treasury Faces Opposition on Pensions, Education in 2015-16 Budget

Education Minister Naftali Bennett threatens to vote against budget; cities say they might keep schools closed.

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Finance Minister Moshe Kahlon, May 18, 2015.Credit: Gil Cohen-Magen
Meirav Arlosoroff
Lior Dattel

Spending cuts and reforms the treasury unveiled on Sunday came under fire Monday in two key areas that could upset Finance Minister Moshe Kahlon’s plans to realize billions of shekels in savings in the 2015-16 budget.

Locked in a battle with the Defense Ministry over spending cuts, the treasury now faces opposition from labor unions, over plans to increase pension deductions by civil servants, and from the education establishment over cuts to school spending.

The Histadrut labor federation issued a restrained response on Sunday to plans to increase how much is deducted from civil servants’ salaries to cover the costs of those still enjoying a budgetary pension, saying any such idea would have to be brought in negotiations.

But Doron Karni, a member of the board of the Histadrut’s Civil Servants Union, had harsher words Monday. “Civil servants are upset at the idea, even before it materializes, because they feel it was done behind their backs. ... It won’t be approved because it violates existing agreements.”

Under the plan, civil servants who still benefit from a budgetary pension — a pension with fixed benefit that is highly subsidized by the state — would have to set aside as much as 7% of their gross salary, up from as little as 2% now.

The current levels were set in 1999 when the Histadrut agreed to move all future hires in government service to an ordinary pension plan, where contributions are invested. Civil servants not covered by a budgetary pension already pay 7%.

The treasury expects that by raising employee contributions it can save 400 million shekels annually and another 150 million shekels a year for universities and local authorities.

Education Minister Naftali Bennett is threatening to vote against the budget to protest spending cuts for schools and higher education. Meanwhile, local authority heads warned at a news conference Monday that they would call a strike of the public schools if the development budget isn’t spared from cuts. They said the money is needed to add classrooms and reduce crowding.

“We will take whatever measures are necessary, including striking the school system and refusing to open the coming school year and other extreme measure to put an ended to classroom crowding,” said Modi’in Mayor Haim Bibas, the head of the Union of Local Authorities in Israel.

The Council for Higher Education in Israel sent a sharply worded letter to Prime Minister Benjamin Netanyahu in which it said that cutting state spending on universities and other institutions of higher education would deal “a major blow to the economy and cause irreversible damage.”

Bennett said the proposed 780-million-shekel cut to school spending in the 2015-16 draft budget must be rolled back, to no more than 100 million shekels. The 250-million-shekel cut to higher education must also be made significantly smaller, he said.

“I expect the prime minister will stick by his coalition agreements. We won’t give up on spending increases slated for a second teacher’s aide [in each preschool classroom], a solution to classroom overcrowding and a program to increase the number of high-school students” studying math at the very highest level,” Bennett said Sunday night.

The fight over classroom crowding has evolved into an unexpected conflict between more and less socioeconomically advantaged communities. The latter group, whose leaders include Jerusalem Mayor Nir Barkat, is arguing that classroom size is not their biggest problem.

“The main challenge facing Israeli society is equality of opportunity for every child. Classroom crowding is an important issue, but the fight concerns mainly the more comfortable local authorities,” the group said Monday, adding, “a group of 15 rich local authorities is threatening a strike but doesn’t represent the majority.”

The two groups also disagree over a plan to provide differential education subsidies, with wealthier communities receiving less than poorer ones. While both sides agree the government should allocate more money for education to disadvantaged communities, the wealthier local authorities advocate the creation of a “basket” of education services that would form the basis for differential spending. The Finance Ministry has no adopted this framework.