The Histadrut Labor Federation on Thursday threatened the stability of the coalition government unless the proposed cuts by the Treasury in welfare, education and health are revoked from the state budget for 2009-2010. "If the budget will not undergo changes, and the proposed welfare cuts that hurt the weak will not be revoked by Tuesday's cabinet meeting on the budget, we will take the necessary steps to shake up the coalition," a source close to the Histadrut said Thursday. Finance Ministry officials held talks with the Histadrut and employer organizations Thursday night in an effort to reach a compromise. Earlier in the evening, Histadrut chairman Ofer Eini met with Prime Minister Binyamin Netanyahu's economic adviser, Uri Yogev, to iron out their differences. Netanyahu ordered the Treasury to reexamine proposed welfare cuts that would hurt weaker segments of the population. The Treasury says a NIS 14 billion cut from the state budget for 2009-2010 is needed as a means to curb the government's deficit, which is expected to be more than NIS 40b., or 6 percent of GDP in 2009-2010, as a result of sharply declining tax revenues and commitments from coalition agreements. "The government has made a number of commitments, and we are adjusting the budget so that they can be met within constraints of the budget framework 2009-2010," Finance Ministry Budget Supervisor Ram Belinkov said Thursday. "The proposal is aimed at organizing the economy in a better way - and not to hurt certain groups of the population." "It is important to understand that the budget next year will increase and not decrease," he said. "What we are proposing is a decline in the increase of the budget. We are faced with a high deficit of over NIS 40b. In this situation we have two options: either we widen the deficit even further and respond to welfare demands, but then our debt-to-GDP ratio would climb to 90% or 100% [from the current 82%], or we close the deficit by raising taxes or cutting measures. We have decided to take the second option and cope with a temporary deficit, which the economy can live with." The proposal presented to the government Wednesday night encompasses a list of cuts totaling NIS 7b. and will be presented to the cabinet on Tuesday for approval, which will be the first hurdle to pass the state budget for 2009-2010. "Until the cabinet meeting on Tuesday there is still a lot of time and much can change," Belinkov said. "I believe that on Tuesday the Knesset will pass a balanced and responsible budget." He said the list of cuts was subject to agreements with the Histadrut and employer organizations over financing budgetary commitments. If Eini agrees to the requested measures by the Treasury - which include a freeze of public-sector wages and the abolition of the tax exemption on advanced-training funds - the government would not need to make additional cuts and might be able to scrap some of the proposed cuts, Belinkov said. Freezing public-sector wages could save the government NIS 3.5b., he said. Eini is calling upon the government to raise the year-on-year increase in public spending from a ceiling of 1.7% to 2.5%. "We are in a time of a crisis," Belinkov said. "The business sector is faced with great difficulties and is every day undergoing painful efficiency measures, including salary cuts and layoffs. There is no reason for the public sector to continue to act in the same manner, by allocating benefits and subsidizing expensive cars and trips abroad." The Finance Ministry proposes to make the cuts across two main areas: defense and welfare. The cuts in the defense budget amount to NIS 3b. The Treasury wants the IDF to raise the retirement age to 57, less favorable conditions for career personnel who retire before age 50, a reduction in benefits for career personnel, abolition of posts for IDF representatives overseas, lower vehicle expenses for career personnel and a salary cut for all professional noncombat soldiers. In addition, NIS 420 million is proposed to be cut from the base budget of the Defense Ministry and NIS 530m. from the base salary budget for Defense Ministry employees starting in 2010. Welfare budget proposals by the Finance Ministry include cutting child-support payments by 10%, while putting on freeze National Insurance Institute payments for the disabled and Holocaust reparations until the end of 2010. By implementing these measures, the Finance Ministry hopes to save NIS 900m. In addition, the Finance Ministry wants a reduction in the Health Ministry's workforce and to use the freed-up funds to cope with epidemics such as swine flu. According to the proposal, patients will be charged NIS 50 for every day they are hospitalized, including child birth. The Treasury also wants to toughen unemployment benefits criteria. It proposes cutting eligibility for unemployment benefits to 45 days for people younger than 35 years of age, 60 days for those 35-45, and 90 days for those older than 45. Tax exemptions up to NIS 6,000 for immigrants coming from countries "in distress," as well as other purchase taxes, are slated to be canceled. The Finance Ministry said it was necessary to implement an across-the-board spending cut of 2% at all ministries to finance the budgetary commitments of the coalition agreements and in view of the government's spending ceiling of 1.7%.