Netanyahu's Coalition Partners to Choose Between Elections and Budget

2013 budget now a political, not economic, question.

The critical decisions about the 2013 budget, and whether there will even be such a budget before new elections next year, is no longer an economic question but a political one. Over the next week and a half, Prime Minister Benjamin Netanyahu will discuss with his coalition partners whether they will support the proposed budget with its spending cuts and tax hikes - or whether he will be forced to call early elections.

Netanyahu held a late night meeting on Monday with Finance Minister Yuval Steinitz and senior treasury officials, and at the end of this second session on the 2013 budget, Netanyahu informed them he would discuss with his coalition partners before Rosh Hashanah whether they would support the treasury's budgetary framework for 2013. Netanyahu said he will consult with Eli Yishai of Shas, Ehud Barak of Atzmaut and Avigdor Lieberman of Yisrael Beiteinu on the budget, and if they answer in the affirmative that they will support the budget, the prime minister will quickly bring the budget proposals to the cabinet and then the Knesset. Otherwise, if Netanyahu's coalition partners will not give their support for the cutbacks and higher taxes required for next year's budget, he will have no choice but to call early elections sometime early next year. In any case, elections must be held by November 2013, and if the budget does not pass the Knesset by the end of March 2013, elections will have to be held within 90 days.

Netanyahu will tell his political partners that they have no choice but to approve the harsh cuts and tax hikes, and that the only question is whether the cabinet and Knesset approves them before the elections or after, which is their decision to make. Because of the very tight schedule involved, Netanyahu said he would not delay a decision on the matter and decide at the latest after the Rosh Hashanah holiday, as any proposed budget would have to be presented to the cabinet and Knesset almost immediately for it to be passed by the end of December.

Among those attending the Monday night budget meeting were the director general of the Prime Minister's Office, Harel Locker; the chairman of the National Economic Council, Prof. Eugene Kandel; Finance Ministry director-general Doron Cohen; and the treasury's budgets division head Gal Hershkovitz. Netanyahu said at the end of the meeting that he would hold a third session with the participants on the 2013 budget soon.

Treasury officials, with Hershkovitz in the lead, presented their proposed framework for the 2013 budget - focusing on the need to make spending cuts of NIS 13 million to 15 billion. Hershkovits said the treasury built the budget assuming a given level of economic growth with priorities placed on increasing employment and closing socioeconomic gaps. Such plans require investing in education and infrastructure like trains and roads, he stressed.

Increasing economic growth will be targeted by increasing economic competition and changes in the labor market next year, according to treasury officials. The Finance Ministry continues to stick to its goal of reducing Israel's debt-to-GDP ratio.

Meanwhile, Netanyahu sustained his objections to the treasury's proposal to cut NIS 3 billion from the defense budget next year. The huge spending cuts are required even with an increase in the planned budget deficit target for next year to 3% of GDP. Among the proposals presented by the treasury are a 2.5% cut in the public sector workforce, postponement for a year of various payments to public sector employees such as clothing and vacation allowances, and increasing the level of pension deductions from 2% to 5% for these workers.

The change in pension deductions would only apply to those government workers who started before the rules were changed in 1999, and whose pensions will be paid directly from the state budget, says the treasury. Newer hires, who account for about half of all public servants, contribute to regular pension funds, similar to most private sector employees. The treasury estimates that all these steps will save some NIS 6 billion to 8 billion.

Other proposals included ending tax breaks on contributions to educational training funds (kranot hishtalmut ), which could save NIS 4 billion a year. The treasury also wants to cut back on child allowances by NIS 2.5 billion a year, and to freeze or cut other National Insurance Institute allowances. Postponing road, train and other infrastructure work could also save billions in coming years.