After a marathon Cabinet meeting that lasted from 8 am Monday
morning until the early hours of Tuesday, the government
approved the 2004 state budget, including an additional NIS
1.1 billion in unplanned social cuts that was needed because
of the decision not to take so much out of the security
Fourteen ministers voted for the new budget and nine
ministers voted against it. Those against the budget were the
five Shinui ministers, as well as Defense Minister Shaul
Mofaz, Education Minister Limor Livnat, Health Minister Dan
Naveh, and Industry and Trade Minister Ehud Olmert. Aside
from the Shinui ministers, all the dissenters were from
The additional cut will include an across-the-board five
percent slashing of all National Insurance stipends,
affecting a wide range of programs. The only stipends exempt
from the cut are those of guaranteed minimal income, alimony,
elderly stipends, stipends for the severely handicapped and
stipends for holocaust survivors. The cut in the stipends is
part of a general across-the-board cut of five percent in all
The additional cut was needed in order to maintain the
Finance Ministry's demand to reduce the budget by a total of
NIS 10 billion.
Prime Minister Ariel Sharon told the ministers that the
additional cut was needed because of his decision to reduce
the planned cut of the defense budget by NIS 2 billion.
Sharon decided the defense budget, excluding US aid and other
additions, would be NIS 32.75b. instead of the NIS 30.6b that
the Finance Ministry had budgeted.
Shinui ministers voted against the budget after claiming that
Sharon did not fulfill his promise to cancel budgets for the
religious councils because of pressure from the National
Religious Party. Sharon said that according to the coalition
agreements there was no need to dismantle the religious
councils at the moment.
At one point Shinui considered fomenting a major coalition
crisis over their demands, but they backed down. Observers
said that they probably only voted against the budget because
they knew it would pass anyway. This is probably true of the
Likud ministers who voted against it as well.
At least eight ministers, including Mofaz, Ehud Olmert,
Livnat, Tzachi Hanegbi, Benny Elon, Zevulun Orlev and Effi
Eitam also threatened to vote against the budget at one
point. Olmert and Livnat had asked Sharon to delay the vote
on the budget for two weeks as they had not had enough time
to fully examine the 180 page document. Sharon insisted that
the vote be held on Monday as planned, saying that any delay
would have a detrimental effect on the markets.
Sharon told the cabinet at the start of the Monday morning
meeting that the government expects the Bank of Israel to
join it in helping the economy grow next year. It was clear
that he meant that the Bank should reduce the interest
Bank of Israel Governor David Klein, who attended the first
half of the meeting, said he doubts the ability of the
government to stay within the boundaries of a 4 percent
budget deficit. He said the Treasury's growth forecast is too
optimistic, and should be 1 percent, not 2.5 percent.
Sharon said that the government must severely cut its
expenses to make the deficit as low as possible, thereby
preserving economic stability. Rating agencies were watching
government actions and, though they have not reduced Israel's
international credit rating recently, they said they would do
so if the government does not act responsibly.
Treasury director Ohad Marani said on Monday that cutting the
budget was the government's only option. "The problem is that
we have a government budget that's too large, a defense
budget that's too large."
He said taxes were already too high and that the deficit
cannot keep increasing indefinitely. Leaving the deficit
unchecked would endanger the American loan guarantees and
sink the economy, leaving budget cuts as the only
Marani said he cannot promise that the budget cuts will lead
to economic growth, but he said the new budget is the best
path to growth.
In a meeting Sunday morning with Netanyahu and Mofaz, the
prime minister told the treasury he would agree to a cutback
of no more than NIS 750 million in the defense budget.
Netanyahu told Sharon that the plan requires a NIS 3 billion
cut in the defense outlay and that he was not sure where they
could find the additional NIS 2.25 billion to cut any more.
Military sources were warning that even the defense cuts
accepted by Sharon are "nearly catastrophic."
The Histadrut threatened to launch a nationwide strike. The
Histadrut is opposed to the public sector job cuts, and the
proposal create competition among Israel's three ports. The
Histadrut also decided it would try to block the planned cuts
in the court.
Earlier this year the Histadrut struck and then agreed as
part of a compromise not to launch any strike action for two
years. However it claims that job cutbacks proposed in the
new budget violate the government's side of the deal, so it
is free to strike.