In agreeing to the coalition demands of both the Labor Party and Shas for increased child and old-age allowances, among others, Foreign Minister Tzipi Livni has committed to NIS 2 billion in increased spending. Part of this spending will have to come from budget cuts in such areas as infrastructure and industrial development.
Economic affairs officials are expecting the cuts to come from budget items that encourage economic growth, and consider Livni's promises to Defense Minister Ehud Barak to be a mistake at a time when the world is experiencing a major financial crisis; these promises are intended to improve the Labor Party chairman's standing with voters and the elderly in particular.
In the past few days, Finance Minister Roni Bar-On received figures on the costs of the coalition agreements, and complained strongly to Livni.
He said the treasury would have a difficult time finding sources for increased spending; nevertheless, the officials said the agreements do not seem to have crossed Bar-On's red lines. Labor has retreated from its demands to increase the 2009 budget by 2.5%, up from the planned 1.7% increase.
The NIS 2 billion figure for child allowances and other demands will be spread out over 2009-2011. The agreements will most likely require changes in the proposed budget for next year, which is scheduled to be presented to the Knesset at the end of this month.
The cabinet approved the proposed 2009 budget in August, and it is missing at least NIS 200 million of the promises to Labor. In addition, it seems that another NIS 400 million in additional revenues anticipated for 2009 will also be canceled as part of the coalition agreement with Labor.
The cost of the agreement between Kadima and Labor, which was signed Monday night, is estimated at NIS 1.5 billion.
The 2010 budget will include an additional NIS 400 million in allowances, with another NIS 400 million in 2011. The plan is for old-age allowances to rise from 16% of the average wage today to 18% in 2011. Another NIS 50 million will be allocated to subsidize day care for needy families, and university tuition will not be raised.
The coalition agreement also includes cancelation of various items in the 2009 Economic Arrangements Law intended to increase tax revenues. Homemakers will not be forced to pay the national health tax, a NIS 300 million cut in planned revenues, and another NIS 100 million in cuts for nursing home care will not be made.
In addition, the parties agreed to examine reducing the management fees retirees pay for their pension funds.
If an agreement is signed in the end with Shas, then another NIS 1.5 billion is expected to go to child allowances. The treasury is presently examining various ways of implementing the increased allowances.
In addition, the various parties that join a new coalition are expected to demand additional ministerial posts, including possibly United Torah Judaism and Justice for the Old (the Pensioners' breakaway party), as well as additional ministers for Labor and Shas. Each new minister costs about NIS 2 million a year.
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