Treasury proposes cuts in defense, more spending on social welfare

Bar-On urges approval of NIS 319 billion budget

By SHARON WROBEL
Ronnie Bar On 88 224 (photo credit: Ariel Jerozolimski)
Ronnie Bar On 88 224
(photo credit: Ariel Jerozolimski)
The Finance Ministry unveiled its draft of the 2009 state budget on Tuesday, urging the government to give priority to closing social gaps at the expense of the defense budget. Finance Minister Ronnie Bar-On intends to present the government with two alternative plans to implement the 2009 state budget of NIS 319 billion - one that focuses on defense and another that focuses on welfare and social affairs. Under the first proposal the government would be forced to make severe cutbacks of NIS 2.1b. in the defense budget, and a NIS 117 million budget cut in social benefits and NIS 30m. in the local authorities budget. Under the second proposal the cut in the defense budget would be less severe, amounting to NIS 900 million, at the cost of about NIS 1.2b. cutbacks in social and welfare benefits - thereby harming social programs, the poor and old age population - in addition to NIS 160m. in cutbacks in the local authorities budget and 350m. in the education budget. "My priorities are clear," Bar-On said at a press conference in Jerusalem. "I told the prime minister to give priority to social affairs and cut the defense budget. If the government doesn't want the budget, there won't be one, but, by law, I must present a budget," said Bar-On. "I don't have the privilege of calculating the probability over whether the budget will pass or not." The decision over which of the two proposals will be adopted is up to the cabinet, said Bar-On. Cutbacks in social and welfare benefits include a near NIS 20 monthly cut in child allowances, from the current NIS 153 per child to NIS 135. Additional proposed measures include a 9% increase in public transport costs, a 6% increase in university tuition fees, a NIS 90 health services tax as well as terminating state-funded security guards in primary schools. Also, maternity leave would be cut to 12 weeks and birth grants would only be given for a first child. Bar-On said that growth in budget allocations and commitments of the various ministries was costing the government NIS 12.7b. in the 2009 budget, when the maximum amount according to the expenditure law is NIS 3.95b. As a result, cutbacks of NIS 8.75b. need to be enforced to keep within the budget framework. "The extent of cuts required is much bigger than in past years because the government has been very generous with spending commitments in defense, for Holocaust survivors and social welfare, without taking into account the revenue needed," Yoram Gabai, chairman of the Pe'ilim fund-management unit of Bank Hapoalim and a former Finance Ministry official, commented. The government will discuss the 2009 budget draft for the first time on Sunday. Interior Minister Meir Sheetrit called on his fellow cabinet members to approve the budget. "Cabinet ministers must demonstrate national responsibility to act without political interests, to project governmental stability to the international markets and most importantly to remove the threat of future political blackmail," said Sheetrit, who as a Kadima candidate for prime minister could find himself in the uncomfortable position of trying to push the budget through a fragile coalition. One of the weakest links in the coalition as far as the budget is concerned is likely to be Shas, which has for the past year campaigned for increases to child benefits. After the budget was presented, Shas chairman Eli Yishai threatened "if the treasury will not make clear that it intends to fight poverty among the children of Israel rather than fight against the children of Israel, Shas will oppose the budget." "A million children under the poverty line have become invisible to the indifferent Finance Ministry," added Yishai. "The people of Israel want to vomit out economic demagoguery and replace it with a Jewish soul. We have had enough of those politicians who prefer economic wealth to children." According to the Treasury's draft budget, government spending in 2009 would increase by 1.7% of gross domestic product, or NIS 236b. over 2008, down from 1.6% this year, resulting in a deficit of 1% of gross domestic product. Yarom Ariav, the Finance Ministry's director-general, said at the presentation that the ministry expects 3.5% economic growth in 2009. "The Israeli economy is going through a difficult period. We are faced with a global financial and economic crisis and political instability. There are indicators that show that the situation of the global economy will spill over into our economy and lead to a slower growth rate in Israel," warned Bar-On. "The slowdown is already seen in unemployment figures and tax receipts." At the beginning of the month, the cabinet approved a sweeping plan to cut government spending in 2008 by 6%, except for defense, education and local authorities, to free up NIS 740m. for "unbudgeted" expenditures. The new commitments resulted from several private member's bills, increased pensions for poor Holocaust survivors, a plan to hire 1,000 new policemen, salary agreements and High Court rulings. The Finance Ministry said these new commitments had created a NIS 2b. gap in the 2008 state budget. Meretz chairman Haim Oron, however, argued that the ministry was artificially generating a budget crunch. "The Finance Ministry's proposal offers the government two bad choices, despite the fact that through simply enlarging the budget, it is possible to provide a response to both the social and security needs of Israeli society." "We will do everything to pass the state budget on time, despite political uncertainty," Bar-On said. "In particular in a situation of a domestic political crisis and uncertainty in global financial markets, it is our responsibility to separate economics from politics in an effort to secure investor confidence and boost economic growth." Rebecca Anna Stoil and Bloomberg contributed to this report.