Budget Bill

Israel's National Budget: Wolf in Sheep's Clothing

Israel's biannual budget bill was approved in a government meeting on May 13, 2009. The budget for this year stands at NIS 316.5 billion, with a maximum allowable deficit amounting to 6% of GDP. In 2010 it would increase to NIS 321.5 billion with a deficit of 5.5%.

Toward its approval, the bill has gone through considerable changes. In the first stage on April 23, the bill and the accompanying Arrangements Law were presented at a press conference by PM Netanyahu and Yuval Steinitz, the incoming Minister of Finance. The preliminary layout was intended to improve the state of the Israeli economy against the backdrop of the global financial crisis. Central to the bill were reforms in the electricity company, the ports and the Israel Lands Administration.

Concurrently, slashes were planned in benefits for the disabled, the elderly, children and Holocaust survivors. Steinitz also announced a plan to cut the salaries of public-sector employees, as well as tax exemptions on workers' education funds. An additional cut was impending in the budgets of the Defense and Education ministries. Plans for tax reductions on corporations and high salary earners remained intact.

This initial version of the budget bill caused a stir. When presented in a government meeting on May 3, not only did the social lobby and the Left object, but there was also fierce opposition from members of Netanyahu's own coalition and party. The incoming Minister of Education, Gideon Sa'ar, declared his objection to the bill; Shas, the Union of Sepharadi Jews, got up on its hind legs demanding higher child benefits; so did the Labor Party, which sought to "upholster" the Defense Ministry for its chairperson Ehud Barak, as well as abolish the plan to tax the education funds of public sector employees.

Seeing his political center of gravity start to destabilize, Netanyahu made it known that he did not agree with the cuts announced by Steinitz. Concurrently, he started negotiating with the Histadrut and Israel's Manufacturers Association, along with the IDF (Israeli Defense Forces) and Ehud Barak, toward making a package deal. Eventually a compromise was reached. The deal was signed by three people: Ofer Eini, head of the Histadrut; Shraga Brosh, head of the Manufacturers Association; and Uri Yogev, Netanyahu's personal budget advisor. The deal annulled many of the planned slashes. The budget framework rose by 3.05% compared to 2008, and the planned national deficit grew, as said, to 6% of GDP.

The package deal includes the following:

1. Reforms in the electric company, the ports and the Lands Administration.

2. Legislative amendments improving workers' ability to form labor unions.

3. Promoting employment and creating new jobs with a budget of NIS 900 million for the Chief Scientist (a subsidiary of the Ministry of Industry, Trade and Labour); renovation of education institutions with NIS 400 million; and a biannual budget of NIS 900 million for the promotion of the Law on Investments.

4. Setting up an aid fund for jobs in the periphery.

On the other hand, the government approved an across-the-board cut of 6.5% in all government ministries. An additional change from the original draft was to raise the Value Added Tax by 1%, while extending VAT to fruits and vegetables. The latter will place a major burden on the weaker classes. As for the uppermost decile, the tax ceilings for payment of National Security will be raised for those earning monthly salaries between NIS 38,415 and 61,342 (7760-15,529$) . Moreover, tax rates will be raised on large vehicles emitting high levels of pollutants.

The Histadrut demanded and won cancellation of a planned tax on workers' education funds. It also achieved cancellation of the planned cuts in welfare benefits and in the salaries of public-sector employees. In return it consented to halve the convalescence pay of the latter for two years, thus saving the State NIS 1.7 billion. The Histadrut's biggest concession, however, was its agreement to the scheme of privatizing the electric company, the ports and the Lands Administration. Their privatization, say Netanyahu and his cohorts, is the core of the budget.