Cabinet to reconvene on 2010-12 budget

Lawmakers fail to come to agreement after debating into the night.

Netanyahu cabinet 311 (photo credit: Ariel Jerozolimski)
Netanyahu cabinet 311
(photo credit: Ariel Jerozolimski)
The biennial state budget 2011-2012 was not yet approved by the cabinet late Thursday night after more than thirteen hours of debate including fierce opposition to lower defense spending.  The cabinet was scheduled to reconvene Friday morning at 8am to continue hammering out a deal.
The two-year budget 2011-12 is believed to have the support of Prime Minister Binyamin Netanyahu, Bank of Israel Governor Stanley Fischer and a majority of ministers.
In an all-night session that began Wednesday night, the cabinet discussed plans to raise indirect taxes to finance investment in education and welfare while curbing defense spending. The main discussion centered around the cuts in defense spending fiercely opposed by Defense Minister Ehud Barak and Labor ministers.
Meanwhile, the Histadrut Labor Federation reached a number of concessions related to old-age benefits. Opposition was also raised against the Treasury’s plan to delay by one year planned increases in child allowances provided by the National Insurance Institute.
“I know we can reach a solution that can help maintain the defense budget while advancing education, higher education and welfare,” Barak said in the cabinet meeting.
Social Welfare Minister Isaac Herzog criticized plans to freeze a rise in child welfare payments, saying, “Everyone likes to talk about poverty, but no one likes the poor.”
He called the decision mistaken and warned that it would distance Israel from its goal of diminishing the gap between rich and poor, as it promised the OECD.
Labor’s kibbutz and moshav sectors threatened to convene the party’s institutions to vote on leaving the government to protest cuts that affected their communities, which they said was a violation of the coalition agreement.
Agriculture Minister Shalom Simhon, who heads Labor’s moshav sector, boycotted the cabinet meeting in protest.
Shas ministers, who usually vote against the budget, were expected to abstain in return for NIS 1.2 billion for Shas chairman Eli Yishai’s Interior Ministry and benefits for Ariel Attias’s Construction and Housing Ministry. The raise in the Interior Ministry budget will go to local authorities and firefighters, informed sources said.
The Finance Ministry is proposing to narrow defense spending by NIS 1.4b.
from the demanded increase of NIS 3.4b. over two years. At press time, sources close to the Finance Ministry were confident of having majority backing from the cabinet ministers.
Since the presentation of the proposal of the two-year budget last week, Steinitz warned ministers that a failure to moderate defense spending would necessitate more painful cuts in the budgets of other ministries, including education, health and welfare.
Speaking at the start of the cabinet meeting Thursday morning, Netanyahu said there had to be a balance between the importance of maintaining control of expenditure and the need to invest in education and social needs.
“The story of the Israeli economy’s success in the last decade stems from the fact that we took control of expenditures and enacted reforms and took other steps to increase both revenue and competitiveness.
We must continue this tradition,” he said. “We also have needs such as education and social needs. We also know that we are in a threatening environment and must respond accordingly.”
Netanyahu said the government was trying to achieve a comprehensive solution by the new fiscal rule, which led to a certain restraint that is, to a certain degree, less than what is customary in other advanced economies.
“The reason for this is mainly that the sum of their sins in the past decade is greater than ours,” he said. “Our formula allows us a certain space, but not beyond what the formula says. We have no possibility of deviating from the budgetary parameters we have set. We must stick close to it, and today [Thursday] we will make a decision according to the budgetary framework that we set according to the new fiscal law.”
According to the new fiscal rule, spending will increase in real terms by 2.7 percent in 2011 and 2012 compared with 1.7% in previous budgets, Steinitz said.
The planned deficit for the budget is 3% in 2011 and 2% in 2012.