Cabinet approves 2% budget cut to pay for Protective Edge

Cuts amounting to NIS 1.5 billion from current spending in education, health, welfare transferred to defense budget.

By NIV ELIS, HERB KEINON
An Israeli soldier sits next to tanks at a staging area near the border with the Gaza Strip (photo credit: REUTERS)
An Israeli soldier sits next to tanks at a staging area near the border with the Gaza Strip
(photo credit: REUTERS)
The cabinet on Sunday approved a plan to pay for Operation Protective Edge by cutting NIS 1.9 billion from the 2014 budget by across-the board reductions to ministry budgets – with the exception of defense – and set out a plan to rehabilitate the economy in the South.
The plan would cut NIS 481 million from the Education Ministry, NIS 175.5m. from higher education, NIS 244m.
from transportation, NIS 62.6m. from welfare, and NIS 43m. from health, while transferring NIS 1.5b. to the Defense Ministry, and providing NIS 400m. toward funding economic programs for the South.
The rehabilitation plan includes a five-year, NIS 1.5b investment in infrastructure in Sderot and other communities near Gaza, NIS 940m. to support the populations there, and a one-time expenditure of NIS 196.6m. to improve civil defense.
The “appropriate Zionist response” to Israel’s enemies is not only to overcome them in battle, but also to develop Israel, and that now means building and developing the communities in the South and near the Gaza border, Prime Minister Binyamin Netanyahu said ahead of the meeting, which took place at the Ashkelon Coast Regional Council offices in Bat Hadar.
Environmental Protection Minister Amir Peretz (Hatnua) and Housing and Construction Minister Uri Ariel (Bayit Yehudi) opposed the cuts, with Peretz saying taxes should be raised instead, and Ariel saying that he opposes the 2% across the board cuts on all the ministries to cover the shortfall, because it was not defined as a one-time cut. Even Welfare Minister Meir Cohen, from Lapid’s own Yesh Atid Party, had threatened to oppose cuts to his ministry’s budget.
Because the budget has certain automatic growth from year to year – an “autopilot budget” of sorts – cuts to the 2014 ministry budgets automatically reduce the trajectories for future spending. That allows Finance Minister Yair Lapid to hit two economic birds with one political stone, grandfathering in a certain level of budget cuts for 2015 in the context of paying for Protective Edge.
Since financing the Gaza operation is only a one-time need, Ariel argued, the budget cuts to cover the cost should come only out of the current budget and not a flat, universal and open-ended cut across the board. Lapid admitted on Sunday that the 2014 budget would only be able to absorb “most of the costs” of the operation, and not all of them as he had previously suggested.
Knesset Finance Committee chairman MK Nissan Slomiansky, from Ariel’s Bayit Yehudi Party, also reiterated his plans to block cuts from “social” ministries. “If they decide to cut from health and welfare, I’ll send it back to them,” he said in an interview on the Knesset Channel, adding that he would also not agree to across-the-board cuts that are not undone in 2015.
Netanyahu’s reply to Ariel and Peretz was that, with the situation in the Middle East now so unstable and dangerous, Israel has to be prepared for a variety of different challenges and that the Defense Ministry needs additional funding to deal with these challenges, and not only to cover the cost of the Gaza operation.
He said Israel will need to continue to invest heavily in the defense budget to ensure it has the technological capabilities to deal with multiple new threats. The Defense Ministry has requested a NIS 11b. boost for 2015, which stands in addition to the costs of Protective Edge.
The only way to ensure that cuts in 2014 do not erode budget levels for 2015 and beyond is to set higher spending for the 2015 budget. Lapid is expected to present his framework for the 2015 budget to the government on September 11, but has been at loggerheads with Bank of Israel Gov.
Karnit Flug over how to proceed.
Whereas Lapid has vowed not to raise taxes, Flug has argued that tax increases are preferable to cutting budgets that are already small by international standards. Whereas Lapid has already conceded that he will raise the deficit from 2.5% to 3% for 2015, Flug warns that the current outlook implies a deficit of 3.5% or 4%, so more adjustments will be necessary.
Whereas Lapid is adamant about his signature housing policy, the “zero-VAT” program, Flug has publicly said it will not help bring down the cost of housing, but will cost the government NIS 2b.-3b.
The two held a meeting on Sunday focused on improving their working relationship.
Not taking into account the effects of the 2% across-theboard cuts, the Bank of Israel estimated that NIS 4.5 billion in budgetary adjustments – whether budget cuts or new taxes – would be needed to hit a 3% deficit for the 2015 budget, plus a postponement of plans to increase education by NIS 1b. and infrastructure projects (including Tel Aviv’s light rail) by NIS 1.6b.
Siding with Flug, Peretz said the government needs to be “courageous enough to raise taxes,” saying that the cuts will hurt Israel’s weakest elements the most, because they are the ones who need the services the most from the ministries that will be cut.
“There was a war, and we need to turn to all the residents and say, ‘there was a war, everyone is part of the situation that was created.’” At the beginning of the cabinet meeting, Netanyahu said, “We are starting to fill in what is lacking in the defense budget.
As we saw recently, defense comes before all else.”
Netanyahu laid out the bare parameters of a plan to rehabilitate and develop the South.
“Our first decision will be to assist – with a NIS 1.5b. fiveyear plan – Sderot and the communities in the area adjacent to the Gaza Strip,” he said. This would go not only to the rehabilitation of agriculture in the region and to repair damage from the conflict, but also to assist industrial, economic and agricultural development, as well as build additional infrastructure.”
Secondly, he said, a similar package will be brought within the month for the development of the larger cities and communities of the South a bit further away from the border, such as Ashkelon and Ashdod.
Thirdly, he said, “We will start to fill in the gaps in the security establishment. This reflects our understanding of the priorities, with security coming before all else. We did great things, but this requires us to roll up our sleeves to enable the IDF, the Shin Bet [Israel Security Agency], and the security services to continue to defend Israel effectively.”
The heads of the Eshkol, Sdot Negev, Sha’ar Hanegev, and Ashkelon regional councils attended the meeting. Netanyahu said their “leadership and patience allowed us to manage the campaign responsibly and aggressively to restore security to the citizens of Israel.”