Prime Minister Benjamin Netanyahu’s Likud party was finally set to begin coalition negotiations with Moshe Kahlon’s party on Sunday evening, after Kulanu boycotted the planned talks last Thursday. Kahlon stayed away after Netanyahu promised the chairmanship of the Knesset Finance Committee to Moshe Gafni (United Torah Judaism) and the Interior Ministry’s Planning Directorate to UTJ’s Sephardi ultra-Orthodox counterpart, Shas.
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Kahlon, who was promised the post of finance minister by Netanyahu just prior to the election, is attempting to muster authority beyond the Finance Ministry, in a bid to solidify his influence over the direction the economy takes once the new government is in place. Likud officials said Kahlon was informed about all relevant decisions in advance, including Gafni’s chairmanship of the finance panel.
Kulanu received 10 seats in the new Knesset, giving Kahlon a fair amount of clout as Netanyahu works to put together a majority coalition in the 120-seat Knesset. Shas will have seven seats in the Knesset and UTJ six. Likud got 30 seats in the March 17 election.
Kahlon is said to be particularly annoyed that the prime minister would make promises to other parties in regard to economic matters. In a meeting between the two men last week, Netanyahu and Kahlon agreed that economic policy decisions would not be taken without the Kulanu leader’s approval. Party officials want to head off the possibility that budgetary promises could be made to other parties behind Kahlon’s back.
Kahlon is himself a former Likud minister, having served at the head of the communications and social affairs ministries. In addition to the Finance Ministry, his party is demanding the Housing and Construction Ministry and the Social Affairs Ministry or another economically related portfolio. Another option might still be the chairmanship of the Knesset Finance Committee, even though that has seemingly been promised to Gafni, or the head of the Israel Land Authority.
Likud officials say fulfillment of all of Kulanu’s demands beyond the Finance Ministry is out of the question. Netanyahu himself, they say, will head an inner cabinet on housing – a highly sensitive issue with the public in light of the steep rise in prices in recent years. The prime minister will reportedly give Kahlon his full backing on the issue, adding that if Kahlon fails to reverse home prices, the government as a whole will be considered a failure in this respect. Likud is seeking to keep the Housing and Construction Ministry for itself.
During early negotiations with the ultra-Orthodox parties, an understanding in principle has been reached to restore state child allowances to their 2012 levels, before cuts were instituted by the outgoing government. The issue is of particular importance to the ultra-Orthodox (Haredim, as they are known in Hebrew) parties, because of the large families that are common in the Haredi community. Ultra-Orthodox party sources estimated that the reinstatement will add some 2.6 billion shekels ($654 million) in child support.
The Haredi parties also foresee the reinstatement of state funding that had been cut from ultra-Orthodox educational institutions, amounting to some 500 million shekels. The child allowance promise is said to have taken Kulanu officials by surprise, and is precisely the kind of budgetary commitment they were seeking to avoid without Kahlon’s involvement.
Agreement has also been reached in principle on the exemption of some basic food items from the 18% value-added tax. Currently, only fresh fruit and vegetables are exempt, but during the election campaign Netanyahu promised to exempt 50 basic items that are subject to price controls. The proposed exemption is expected to result in a loss of between 800 million to $1 billion shekels in tax revenues for the treasury.
Likud sources have said they view steps that lower the price of food and increase child allowances – at least with respect to the second through fourth child in the family – as social benefits for all families, not only ultra-Orthodox ones. All told, the extra money for child allowance, Haredi education funding and VAT exemption are set to cost the state some 5 billion shekels annually.
Habayit Hayehudi – headed by outgoing Economy Minister Naftali Bennett, and eight seats in the new Knesset – has made economic demands of its own. These amount to billions of shekels in spending, according to Likud coalition negotiator Zeev Elkin.
Although Bennett is demanding either the foreign or defense ministry for himself, it is expected that the current incumbents, Avigdor Lieberman (Yisrael Beiteinu) and Moshe Ya’alon (Likud), will remain in their posts. Bennett is also seeking the Education Ministry and one other ministry for his party, but Likud sources said it is possible that the education portfolio would also remain with Likud.
The key question is where the money will come from to fund these new demands. With regard to funding for the VAT exemptions, in the short-term it is expected to come from surplus tax revenues (in excess of revenue projections for 2015) and from scrapping the VAT exemption for certain new homebuyers, a flagship project of former Finance Minister Yair Lapid. The increased child allowances are also expected to be funded from surplus tax receipts and changes in government spending.