Cabinet Has to Decide: Defense or Education

Share the wealth and the evil, Finance Minister Bar-On tells ministers.

For the first time in Israeli history, the Finance Ministry is handing the responsibility for shaping the budget over to the cabinet. At least in part: Finance Minister Roni Bar-On will be giving the ministers two, or possibly more, basic budget alternatives for the year 2009. It will be up to the ministers to choose one, as he told them during a Knesset plenum session last Monday.

"[The hard decisions] will no longer be the province of the budgets division at the Finance Ministry or the treasury management," Bar-On said. "They will be an issue for the government, which will be presented with alternative priorities from which it has to choose."

Each and every minister will have to make a decision whether to cut from budgets for welfare, education or defense, Bar-On said. There won't be one bad cop for everyone to despise: "all the ministers will have to share the evil."

That is because in any case about NIS 8.5 billion have to be cut from the budget and apparently, the ministers will face a choice, between a budget skewed towards defense (and apparently infrastructure too), or a budget that favors education and welfare, at the expense of defense spending.

Bar-On decided to hand the responsibility over to the cabinet after the treasury's budget director, Ram Belinkov, failed to achieve an understanding about budget cuts with Raanan Dinur, the director-general of the prime minister's office.

Also, Bar-On had some run-ins with his own budget officials. Once burned about slapping tax on training funds, the minister was shy of controversial ideas, such as the proposal to reduce the government grant to new mothers.

Regarding the budget cut, in theory the 2009 budget may (under law) be about NIS 4.4 billion bigger than the 2008 budget (under present law, the budget may grow by no more than 1.7% from one year to the next).

The problem lies in the "automatic pilot" mechanism - namely, during the year, Israel's population grew by a certain percent, requiring a certain increase in government spending. Meanwhile the Knesset and cabinet both passed decisions that incur expenditure.

The increase in spending from population growth - the "automatic pilot" - and various such decisions comes to nearly NIS 13 billion, which means that to comply with the law (capping the budget increase at NIS 4.4 billion), the cabinet needs to decide where to cut NIS 8.5 billion.

The new approach to building the budget passes the "real decision" to the cabinet, to the ministers, flouting claims that the government is a mere rubber stamp to Finance Ministry decisions, Bar-On explained yesterday.

Based on the "automatic pilot" mechanism explained above, the defense budget for 2009 should be around NIS 55 billion. If the ministers decide to cut money from defense, they could simply do away with linking the 2008 defense budget to population growth, which would save NIS 3.1 billion. The ministers could theoretically even go further and cut defense by more.

Or, the cabinet could elect to reduce the NIS 35 billion budget for education. That figure includes the budgets for universities.

Calling his move "revolutionary", Bar-On said yesterday that once involved, the ministers could no longer accuse the Finance Ministry of hard-heartedness.

Some treasury officials in the budget department hadn't liked the idea of giving the ministers options to choose from, Bar-On admitted.

Building the 2009 budget has been harder than in previous years, treasury officials complain, and point the finger of blame at the busy schedule of Prime Minister Ehud Olmert, who announced last night that he won't be running in the Kadima primaries and will be quitting as premier when his successor as party leader is chosen. Olmert has been too preoccupied to discuss the budget, say the treasury people. Also, the weakness of the coalition has been a problem when deciding where to cut NIS 8.5 billion.

By and large, the top officials at the prime minister's office, including Raanan Dinur, director general of the prime minister's office, and Manuel Trajtenberg, Olmert's economic adviser, have accepted the treasury's main concepts. These include allowing the 2009 budget to be only 1.7% greater than the 2008 budget in real economic terms, and setting the maximal budget deficit at 1%. Also, the inflation target remains a band of 1% to 3%.