Netanyahu Buys Coalition Support for Economic Plans

Canceled NIS 242 million in budget cuts that would have targeted ministries controlled by the Shas, Atzmaut factions.

Prime Minister Benjamin Netanyahu secured approval for his tax hikes and spending cuts by agreeing to cancel NIS 242 million in cutbacks that would have targeted ministries controlled by his coalition partners in return for their support.

After Finance Minister Yuval Steinitz agreed to the changes in the economic program passed Monday by the cabinet, the Knesset Finance Committee approved the value-added tax increase now scheduled for September 1.

Netanyahu and Steinitz reached deals with the Likud's coalition partners Shas and Atzmaut, as well as with Uri Ariel from the opposition National Union party.

Among the changes are cancellation of a NIS 15 million cut in the education budget and smaller cuts in higher education.

Shas agreed to support Steinitz's plan in return for canceling NIS 41 million in cuts for local authorities and NIS 60 million for troubled municipalities. A number of MKs expect much of this funding to go to towns headed by mayors from Shas. These budgets flow through the Interior Ministry budget, and Interior Minister Eli Yishai is the chairman of Shas.

Gain for public housing

In addition, the Housing and Construction Ministry, headed by Shas' Ariel Atias, will not have its social services budgets cut, including those for rehabilitating neighborhoods, rent subsidies and public housing. The treasury also agreed to allocate further sums for increasing the inventory of public housing units and developing land to accelerate building projects.

Atias confirmed that Shas had reached agreements with the treasury.

Defense Minister Ehud Barak's Atzmaut party also reached an agreement with Netanyahu on canceling the cutbacks. The original NIS 118 million cut in the defense budget will be restored - in return for a promise from Barak to support the government's economic proposals in the Knesset. The treasury's original spending cut proposal did not include any cuts in defense, but after Barak refused to support the plans, the treasury decided to "punish" him with the NIS 118 million in cuts - which will now be canceled.

Other cuts that were canceled were NIS 50 million for daycare centers in the budget of the Industry, Trade and Labor Ministry, headed by Shalom Simhon of Atzmaut, along with another NIS 17 million for training programs. But NIS 88 million of the cuts in the ministry's budget were left intact, mostly involving funds for the Chief Scientist's Office.

Agriculture Minister Orit Noked (Atzmaut ) also saw NIS 3 million of the NIS 9 million cut in her ministry's budget restored.

Ariel said his party received nothing in return for his support in the Finance Committee vote, but Knesset sources said they expect the committee to approve additional funds for settlement in the West Bank soon as recompense.

Fischer: Need to prepare for next year

Knesset Finance Committee chairman Moshe Gafni (United Torah Judaism ) Wednesday proposed suggestions on the new economic plans to Steinitz at a committee session at which lawmakers approved increasing VAT by 1% to 17% as of September 1. For example, Gafni recommended raising corporate taxes by 1% instead of raising income taxes by 1% on those earning less than NIS 14,700 a month.

Saying businesses should also take part in the economic effort, Gafni proposed a tax surcharge, "a tax on the rich," on those with large capital gains earnings and not only on income from work. Gafni asked the treasury to respond to his proposals by Sunday.

Stanley Fischer, governor of the Bank of Israel, told the Finance Committee on Wednesday: "We are not in a recession but in a relatively good position." But Fischer said now is the time to put things in order so the economy will also be in a good position next year and be prepared for difficulties.

"Before elections, it is very easy to say 'everything will be okay.' But if there is a crisis we will have to raise taxes, it will be bad. You don't raise taxes in a recession. The response must come now, when there is no recession and there is [economic] growth," said Fischer.

Eli Yishai
Emil Salman
Ehud Barak
Emil Salman
Shalom Simhon
Yaron Kaminky
Ariel Attias: NIS 16 million
Daniel Bar-On
Orit Noked
Gil Cohen-Magen