hirchson podium 88 298.
(photo credit: Ariel Jerozolimski)
NIS 3.85 billion in cuts to social programs and infrastructure development that had been planned for the year prior to the outbreak of the war in July.
"The budget being presented today is not the budget that I had planned to present to the government before the war," Hirchson said, noting that the war had "very significant ramifactions on the state budget... We entered the war with surplus revenues. That surplus no longer exists."
To cover the necessary growth of the budget following the war, NIS 1.12 b. will be taken through a freeze on growth of welfare allowances; NIS 1 b. will be taken from planned expansion of railway programs; NIS 640 million will be raised by "postponing" deals made to bring parties into the ruling coalition; another NIS 640m. through other, unspecified cuts; and NIS 450m. will be raised by cutting planned government purchases.
Welfare payments frozen include those benefiting the elderly and widows, single mothers, the disabled, those injured on the job and the unemployed, in addition to child allowances, income guarantee allowances and assistance for caregiving.
The cut to the railway development budget would have the eventual effect of bringing the five-year development plan back down to NIS 24b., after it had been raised to NIS 26b. from an earlier level of NIS 20b., Budget Supervisor Kobi Haber noted.
Coalition promises whose fulfillment would be delayed include a postponing a raise to the minimum wage, which would save NIS 340m.; a temporary NIS 200m. cut to deals made with Shas, primarily through programs to help youth at risk; and NIS 100m. held back on promises to the Gil Pensioners Party.
"I also want to be nice and give to everyone, but ultimately that doesn't work," said Haber. "Everyone making demands is only seeing one side, whether it is defense or social spending or various ministers and Knesset members," he said, adding that it is up to the Finance Ministry to "balance" the different demands.
Hirchson added that "the state budget is dedicated to defense, society, the economy and infrastructure. It all comes from one pocket... I prefer not to be popular, but to protect the interests and future of the Israeli public and of the market."
"I will not bring the economy back to the days of the recession... I will not bring the market back to a vertigo as a result of... the war," Hirchson pledged. "We have a national responsibility, for the good of future generations, to protect the economy of the State of Israel so that it will protect us," he said.
In his defense, Hirchson stressed that his team was able to add NIS 1.99b. in social spending to next years budget in comparison with the 2006 budget despite the war, including NIS 799m. more for programs to boost employment (of which NIS 700m. to the raise in minimum wage); NIS 432m. more for welfare payments and National Insurance Institute allowances; NIS 296m. more on health spending (primarily through a NIS 237m. addition to the medication basket); NIS 275m. more for education and higher learning; and NIS 190m. more allocated to the Bureau for Rehabilitating the Disabled.
"Gentlemen, is this not a 'social government'?" he asked the reporters gathered, noting the amounts received by such items as youth at risk programs and daycare facilities had risen in previous years.
After the war, the budget needed to grow by NIS 7.75b. - up from a pre-war estimate that NIS 6.7b. more would be needed - but the 1.7% growth target for fiscal spending requires the Treasury to limit the growth to only NIS 3.9b., and seek the additional NIS 3.85 from other parts of the budget, necessitating the cuts, Haber explained.
Of the NIS 8.2b. "one-time payment" the Treasury has agreed to give to the Defense Ministry budget so far, NIS 3.5b. will be included in the 2007 budget and NIS 2.2b. will be given in the 2008 budget. Of the remainder, part will be paid, or has already been, during the 2006 budget year. Hirchson will set up a commission to examine the civilian portion of the defense budget and advise on any additional funding.
"I agreed to the one-time budgetary addition to the defense system with the understanding of the immediate needs, and only after receiving agreement that a reform will be carried out in the whole process of allocating funds to the defense system," Hirchson said.
Treasury staff preliminarily estimated the total cost of the war at between NIS 13b. and NIS 14.5b., including the NIS 8.2b. one-time payment; NIS 1b. to NIS 1.5b. for compensation of direct damages; NIS 3.5b. to NIS 4.5b. for compensation on indirect damages; and an additional NIS 300m. for other expenses.
Hirchson also pledged that taxes would not be lifted. He derided the idea to lift VAT as being harmful to young couples, not "someone who buys a Mercedes," in response to comments reportedly made Monday by Finance Committee Chairman Yaacov Litzman.
Bank of Israel Governor Stanley Fischer also issued a statement Monday in favor of lifting the VAT back to 16.5% until the end of 2007, where it was prior to a reduction made in June as part of tax reforms.
Hirchson pledged that the 2007 budget deficit would not excede 2.9% of GDP, and expressed confidence that the 2007 budget would be passed by the end of 2006.
The government will discuss the budget proposal at a meeting this coming Tuesday. The budget will be submitted to the Knesset at the end of October, the Finance Ministry said.
The Treasury also indicated that reforms would continue as planned next year, including the sale of the Haifa oil refinery; the merger-privatization scheme for Israel Military Industries; an anticipated aviation deal with the European Union to further "open skies" and structural change in the Israel Airports Authority; further mergers of local authorities; reforms in the health and higher education systems; increased competition in the electricity market; further privatization of the postal system; and efforts to reduce the number of foreign workers in the country and bring more mothers into the labor market.
Among macro-economic updates, the Treasury reiterated its updated forecast for 2006 economic growth at 4.3%, down from 5.3% before the war, and said that the GDP is now expected to grow 3.8% in 2007, down from 4.1% before the war. This year's deficit is now estimated to total 1.5% to 2% of GDP, as opposed from 0% before the war.
Revenue surpluses that had built up prior to the war have been used on physical rehabilitation of houses in the North, and on compensation for workers, industrialists, the tourism sector and farmers, Hirchson said.