Despite Row Over Cuts, Gov't Likely to Approve 2009 Budget

Treasury, cabinet ministers haggle over proposal to slash NIS 7 billion from defense, welfare budgets.

The battle over the 2009 state budget will be the focus of Sunday morning's cabinet meeting, though the budget is expected to be approved. Finance Minister Roni Bar-On is seeking to cut funding to a number of government offices, but has encountered firm opposition from a coalition of Labor, Shas and Kadima ministers.

Next year's budget will total NIS 319 billion, but where some NIS 7 billion in cuts will come from is still unknown. This is the main issue yet to be resolved.

The treasury has proposed two alternatives for the cuts, leaving the decision in the ministers' hands. The first option would make most of the cuts in the social-welfare budgets; while the second option is to cut defense spending.

The focus of Sunday morning's debate will be the treasury's request to trim between NIS 900 million and NIS 2.1 billion from the planned increase in the defense budget, as recommended by the Brodet Committee. The Defense Ministry, for its part, is demanding an additional NIS 2 billion in both 2008 and in 2009, mostly to make up for inflation.

On Saturday night, finance ministry officials held a late-night meeting with ministry representatives opposed to the cutbacks. Sources in the Prime Minister's Office said on Saturday that despite the differences between the two sides, they expect them to arrive at an agreement that would allow the budget to pass.

Prime Minister Ehud Olmert said on Saturday that "everything must be done to pass the budget and not be dragged into 'election economics.'"

Sources in the Prime Minister's Office said on Saturday that Olmert intends to do everything possible to reach an agreement, but that "the solutions need to be substantive and not political."

Over the weekend, Olmert and Bar-On continued their contacts with cabinet ministers, alongside talks between senior treasury officials and their counterparts in other government ministries, all in order to reach agreements on next year's budget.

Labor officials presented a more pessimistic version of events. The party firmly opposes any cuts to the welfare and defense budgets demanded by the finance ministry.

Defense Minister and Labor chairman Ehud Barak will bring Histadrut labor federation chairman Ofer Eini to Monday's meeting in order to present a united front against the proposed cuts.

Social Affairs Minister Isaac Herzog said on Saturday that talks with the Finance Ministry had reached a dead end. "The Finance Ministry is not willing to compromise and has been extremely inflexible," he said.

Public Security Minister Avi Dichter and Transportation Minister Shaul Mofaz, both of Kadima, also expressed their resistance to the cutbacks. "The current proposal points to clear neglect of internal security in Israel," Dichter said.

Officials from the treasury and the Prime Minister's Office expect the decision on how much to cut from the defense budget to be made on Sunday, in a three-way meeting among Olmert, Bar-On and Barak. The PMO and treasury also expect the 2009 budget to pass the cabinet on Sunday, with the support of ministers from Kadima, the Pensioners Party and a number of Labor Party ministers.

Shas will vote against the proposed budget. The party is demanding increased child allowances, which is not included in the budget. Transportation Minister Shaul Mofaz (Kadima), a candidate to replace Olmert in the Kadima primary in September, is also expected to vote no on the budget. A number of Labor ministers will abstain or vote against.

The treasury said at the end of last week it was clear the budgetary framework would not be breached, and the spending targets have not - and will not - be changed. The 2009 budget includes a 1.7% spending increase over this year and a planned deficit of 1% of GDP.

Defense: Treasury is violating commitmentsThe treasury says the 2009 budget is based on current economic conditions and contains no painful measures for the general public. The treasury says that despite all the cuts, all ministries will have higher budgets in 2009.

The defense budget is the largest ever, at over NIS 56 billion, and includes the additions recommended by the Brodet Committee as part of the conclusions reached from the Second Lebanon War.

Nevertheless, the Defense Ministry accuses the Finance Ministry of trying to force it to move NIS 1.3 billion of next year's budget to 2010.

The Defense Ministry is complaining it has been hit hard in 2008 by the strong shekel and weak dollar, as well as higher prices for food, fuel and raw materials - all of which have cost defense some NIS 2 billion. The ministry is demanding full compensation for the price increases, and a similar amount for 2009, as defense expects the high costs and strong shekel to continue through next year.

In the past there was an agreed-upon mechanism for adjusting the defense budget to account for such inflation, claims the ministry.

Treasury: Defense is selfishThe treasury is calling its proposals, including moving allocations from 2009 to 2010, fair. It rejects the demands for inflationary adjustments and is calling the Defense Ministry "selfish and egotistical," saying it does not consider the interests of the entire economy and has ignored a long list of demands and additional funds the treasury met this year. These include NIS 300 million for the new reservists' law, additional funds for the separation barrier and the establishment of a new national emergencies authority. Finally, the treasury says that all other ministries have had their budgets frozen for such increases through 2010.

Pensioners get what they asked forThe treasury did meet most of the demands of the Pensioners over the weekend, including increased old-age pensions, an equalization of benefits to widowers and widows in veteran pension funds, the lifting of management fees for the veteran funds and discounts for retirees for drugs and for the Israel Broadcasting Authority license fees.

The treasury says the only outstanding issues with the Pensioners relate to health care.