Steinitz Presents Knesset With 2009-2010 Budget

The Finance Ministry submitted the state budget and Economic Arrangements Bill for 2009-2010 to the Knesset yesterday. The Knesset must approve both in three readings by July 15. Failure to do so would topple the government and force new elections.

The nine ministers without portfolio who were assigned to special tasks will cost the state NIS 81.8 million annually. And to this cost another NIS 26.1 million a year for security (the cost of security services for a minister runs to NIS 2.9 million annually), for an annual cost of NIS 107.9 million. The figures are for 2010, since the Finance Ministry has yet to complete its accounting for 2009, but 2009 figures will presumably be similar. Nevertheless, assuming similar budgets for 2009, and in light of the fact that the government was formed in early April, the cost of these nine figments of the new government will add up to NIS 188.8 million.

Nine ministers without portfolio and special task appointments to the Prime Minister's office, and seven deputy ministers, most of who are ensconced in the Prime Minister's office as well, will account for NIS 124.6 million out of the state coffers annually. For instance, In 2010 Minister of Minorities Avishay Braverman will enjoy an annual budget of NIS 20 million. Michael Eitan, who has been charged with improving government services to its citizens, is to get a budget of NIS 2.2 million, and the Minister of Religious Affairs, Yakov Margi, will have NIS 3.0 million to work with. Ze'ev Binyamin Begin, minister of no defined purpose, will have a budget of NIS 2.2 million with which to conduct his affairs, as will Yakov Magri, who is responsible for Haredi education affairs. Yuli Edelstein, Minister of Information and Diaspora Affairs, will get a budget of NIS 35.7 million. Each minister without portfolio is also entitled to appoint employees, such as consultants, secretaries and a driver, the cost of which is included in their budget.

The seven new deputy ministers will cost taxpayers NIS 15.8 million each in 2010. These include Ayoob Kara, who is in charge of development of the Negev and Galilee, Gila Gamliel, who is responsible for representing women and children's affairs, Deputy Defense Minister Matan Vilnai, Orit Noked, Deputy Minister of Industry, Trade and Employment, Deputy Foreign Minister Daniel Ayalon and Deputy Minister of Housing Meir Porush. Each will have a budget of NIS 2.2 million. The deputy minister of pensioner affairs will get NIS 2.6 million. The figures do not include Deputy Minister of Health Yakov Litzman, who is acting health minister.

At a press conference yesterday marking the submission of the budget, Finance Minister Yuval Steinitz said that the first two-year budget in Israel's history is the most social-welfare oriented one in recent years. The budget offers unprecedented support to large families, mostly Arab and Haredi, Steinitz said.

Steinitz added that a broad plan drawn up by the Prime Minister's Office and the Finance Ministry form the basis for the budget. The first stage of the plan aims to halt the negative effects of the global and local economic crisis, and in particular the decline of economic growth and rise of unemployment. The second stage aims to regenerate strong economic growth that will push Israel into the forefront of the developed countries.

A particular effort will be made to substantially reduce the number of foreign workers in the country, totaling 300,000 - the largest per-capital foreign workforce in the world, Steinitz noted.

The finance minister said that the unique economic situation has forced the ministry to submit a daring economic plan, and the new budget, he said, is just that. Steinitz added that a key aspect of the budget is an agreement between the government, the Histadrut Labor Federation and employers. All of the issues with employers have been resolved, he said. Steinitz expressed confidence that all disputes with the union will be worked out within days as well, and that a package deal would be finalized.

Referring to Morgan Stanley Capital Index's recent upgrade of Israel's international ranking, from an emerging to developed market, Steinitz said that Israel would not rest on its laurels, and would make every effort to rise in the ranks of developed economies. He promised that the government's planned tax cut for 2009-2016 would continue on course in spite of the gaping hole in tax revenues for this year and next.

Steinitz expressed unconditional support for cancellation of the VAT exemption on fruits and vegetables, describing it as a historical distortion that has no place in the tax system, and certainly not in the difficult period that Israel is experiencing. Tax evaders, as well as restaurants, banquet halls and the rich have been the main beneficiaries of the exemption. If the cancelation of the exemption does pass the hurdle of Knesset approval, he said, there is a good chance that VAT will increase to 17% from 16.5%, as the Finance Ministry has planned. It will mean that the poor will suffer more, plus they won't be compensated by the state. The finance minister related that he met yesterday with Bank of Israel Governor Stanley Fischer, and that the two are on good terms. Nevertheless, he brought no tidings of any breakthrough on the issue of the new Bank of Israel law.

Deputy Finance Minister Yitzhak Cohen said that unlike in the rest of the world, no financial institution in Israel had been bankrupted in the current economic crisis. In his opinion, the budget discussions sent a reassuring message to the capital market.

On the one hand the market mood is optimistic, the stock market is on the rise and experts are saying that we are beginning to see the light at the end of the tunnel in the current crisis, but on the other hand, unemployment is increasing, there is a gaping hole in the budget due to reduced tax revenues, and most economic indicators point to a continuing crisis, said Finance Ministry Director General and head of the budgets department, Yoram Ariav. Ariav added that Israel's economy continues to be in better shape than other countries. He pointed to economic growth, which fell sharply by 3.6% in the first quarter of this year, but by comparison, European countries experienced an average decline of more than 9%. The most vulnerable sector, he said, is export.