The cabinet voted 15-6 on Sunday to cut NIS 600 million from the 2008 state budget, instead of the NIS 1.3 billion proposed by new Finance Minister Ronnie Bar-On. The amended proposal came after Prime Minister Ehud Olmert said the across-the-board cuts in ministerial budgets, originally slated to be 6 percent, would be reduced to 3%, with the remaining 3% coming from ministerial budget reserves frozen by the Finance Ministry in the 2007 budget. The 2007 state budget totaled NIS 295.4b. when it was approved by the Knesset on January 4. Olmert told his ministers the government had to make the sacrifice in favor of its top priorities - defense and education - and to live up to its responsibility to maintain the fiscal discipline that promoted economic growth. "I, myself, always opposed a flat cut, but having said this, I realize that it is essential that we finance ministries such as defense and education," Olmert said when explaining to the ministers that he understood the difficulties the cuts would entail. "I've instructed that the cutbacks must not harm social or welfare issues," he said. The cuts are intended to finance the following budget increases:
NIS 400m. for defense.
NIS 344m. for home front preparations, including protecting classrooms in communities near the Gaza Strip, upgrading air raid shelters in the North, and civil defense against atomic, biological and chemical warfare.
NIS 456m. for educational reform and other purposes.
As expected, Labor's six cabinet ministers voted against the cuts, while Justice Minister Daniel Friedmann and two Shas ministers abstained.
"The budget must not be slashed, certainly not in the light of the security events that occurred last summer," Labor Chairman Ehud Barak said. The vote was supposed to take place last week, but was postponed at Barak's request.
The cuts were approved conditional on the release by the Finance Ministry of the 3% held in reserve for contingencies (this sum is considered part of the budget but remains frozen.) It was also decided that the cut would not apply to the programs currently underway in the IDF.
"Personally, I see no reasons why the government needed to make these cuts," said Roby Nathanson, director-general of the Macro Center for Political Economics in Tel Aviv. "There is definitely no economic reason to do this - we have a stable currency, a good balance of payments, a surplus of some NIS 10b., and I don't see any security problems arising."
Nathanson speculated, however, that the cuts might be designed to free up cash in case it was needed at a later date, but he remained unconvinced. "There have been much more drastic cuts in the past, but I really see no reason to be doing this at all," he said.
Industry, Trade and Labor Minister Eli Yishai of Shas agreed. "We have plenty of budgetary reserves... I see no need for cutbacks at all, let alone on health and welfare," he said.
Meanwhile, Shlomo Maoz, an economist at Excellence Nessuah Investments House in Tel Aviv, said the budget cuts were the government's way of sending a warning. "The only reason for these cuts is for the government to broadcast that it is not planning on giving more money to anybody," he said. "If the budget does not get cut this year, then next year all the various parties will be asking for more."
Bar-On suggested that the budget should only go to the Knesset Finance Committee for approval following deliberations on the implications of cuts in the defense budget.
Kadima, Israel Beiteinu and the Gil Pensioners Party's ministers voted in favor of the motion.