(photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Prime Minister Benjamin Netanyahu’s governing coalition faced a potential crisis on Sunday over Finance Minister Moshe Kahlon’s insistence on cutting retroactive child welfare benefits from the 2015- 2016 state budget that must be passed in the cabinet next month.
The first deliberations on the budget in the cabinet were intended to take place on Sunday, but were postponed after a meeting between Kahlon and United Torah Judaism head Ya’acov Litzman late Saturday night ended on bad terms.
UTJ leaders said Kahlon was aware Netanyahu promised during coalition negotiations to retroactively restore child welfare benefits that were cut by then-finance minister Yair Lapid.
“Treasury officials say that these are tough times, so we need to change the coalition agreements, but they are not allowed to intervene in political agreements,” said UTJ MK Moshe Gafni, who heads the powerful Knesset Finance Committee. “We have a signed agreement and it won’t be changed because of mistakes made by the previous government.
The prime minister needs to prove he’s a man of his word.”
Shas leader Arye Deri has threatened a coalition crisis if value-added tax is not removed from basic household items, and Bayit Yehudi is unwilling to give up on extra funding it received for national-religious education.
There are also Likud ministers who have threatened to vote against the budget, including Public Security Minister Gilad Erdan and Social Welfare Minister Haim Katz.
Sources close to Kahlon called upon the ministers to show flexibility in order to enable him to avoid raising taxes and pass a socioeconomically sensitive budget that can help the disadvantaged.
“The budget will not be proposed unless it is responsible,” a source close to the finance minister said.
The budgetary difficulties stem from expensive promises Netanyahu made in order to secure coalition deals following the March elections. Besides reversing cuts to child allotments enacted by Lapid and the VAT exemptions for basic items, the promises include increased defense spending and Kahlon’s own initiatives to provide unemployment benefits for independent workers and increasing pension payments for the elderly.
The promises are estimated to cost some NIS 8 billion.
Given that the Finance Ministry must fill in a NIS 14 billion budget hole to hit all its fiscal targets, Netanyahu is hoping to scale back some of the promises. The child allotments, for example, could be raised over a two-year period instead of right away.
Making matters more difficult is that Israel is supposed to slowly narrow its deficit, from 2.5% of GDP in 2015 to 2% in 2016 and 1.5% by the end of the decade. In recent years, Israel has revised and revisited its deficit targets, leading the IMF to recently say that Israel’s inability to stick to its goals meant that there was “no effective fiscal anchor.”
One option to meet its goals is to raise the 2016 deficit target to 2.9% (Treasury officials are wary of increasing it beyond that because international bodies recommend deficits stay below 3%). If the parties don’t agree to Netanyahu breaking his coalition promises, the government may have to enact an across-the-board cut from all the ministries. It could also raise income taxes or the already-high VAT, which is currently at 18%.