Finance Minister Benjamin Netanyahu's budget for the next
fiscal year includes a NIS 10 billion cut in spending that
features a NIS 3 billion cut in the defense budget. The Shin
Bet and Mossad are seen being forced to cut at least 13
percent of their officers in the coming three years.
For the first time in the country's fiscal history, the
Treasury has recommended the adoption of economic policies
for the next four years.
The finance minister warned that if his demands for defense
cuts are not accepted, "very painful" budget cuts will have
be implemented in other ministries.
Netanyahu also proposed cutting tax breaks for early retirees
and streamlining the public sector. He said his proposal
would lead to economic growth of 0.5-1 percent by the end of
2004. The 187-page budget book includes a NIS 20.6 billion
budget deficit, equal to 4 percent of gross domestic product,
a full one percentage point above what he promised the Bush
administration when negotiating for loan guarantees. An
across-the-board 15 percent budget cut will affect every
ministry, and next year's government expenditures are
supposed to be no more than NIS 217 billion.
The finance minister claimed the plan would improve the
quality of life in Israel, strengthen the weaker sectors of
society, and create a tax environment that is very attractive
to foreign investors.
"Our primary goal is to improve the quality of life for all
residents of the State of Israel. This we will accomplish via
the promotion of economic growth and the strengthening of
weak population sectors, and with consumer defense via the
breakup of monopolies," Netanyahu said, referring to Mekorot
and Tnuva. "Israelis do not know that the milk they buy is
the most expensive in the world. We plan to change this," he
The finance minister also said the treasury intends to reduce
grants to poverty-stricken cities and instead impose tax
breaks, which he said would draw investment and advance
The proposed economic plan includes privatization of Bank
Leumi, Israel Discount Bank, Bezeq and Oil Refineries. The
state-owned ports will also be opened to competition,
Netanyahu said. He added that he intended to secure dramatic
investment in the national train system.
The plan includes reforms in both the treasury and education
system, and includes raising the age of retirement and a full
tax on individuals choosing to take early retirement.
"There is growing public understanding, and understanding in
the defense establishment, that such a cut is possible. The
regime of Saddam Hussein has been dismantled by the US, and
thus the threat of an invasion from the east has been
eradicated, allowing us to make these cuts," Netanyahu
"However I will be the first minister, before Defense
Minister Shaul Mofaz and Prime Minister Ariel Sharon, to
provide the army with resources when they are needed," he
The planned 11 percent to 15 percent cut in the spending of
each ministry will depend in each case on the behavior of the
ministry in question. Those offering their own proposals will
see an 11 percent reduction, while those requiring the
Treasury to impose "efficiency" plans will be forced to
swallow a 15 percent cut.
Some 1,500 civil servants will be laid off. Not only will
Interior Ministry districts be consolidated, but
organizations such as the Public Works Department are to be
dissolved. The Postal Authority will be transformed into a
state-owned company, and competition in the mail delivery
market will begin. The program also calls for cuts in housing
grants totaling NIS 200m., and a NIS 250m. cut in the health
VAT is expected to remain at 18 percent, and water prices
will increase by 0.15 agorot for both industrial and home
NIS 1.5b. will be taken from government insurance companies,
in the form of a withdrawal of surplus funds from the Avner
and Karnit motor vehicle accident victims insurance
The Treasury further announced a planned increase in taxes on
the income of foreign workers, paid by their employers.
Already at 8 percent, the tax will rise to 20 percent as of
January 1, and gradually to 40 percent.
Minister-without-Portfolio in the Treasury Meir Sheetrit
announced the adoption of the Wisconsin plan for eliminating
welfare. Aimed at being operational next year, the program
forces unemployment compensation recipients to arrive in the
morning of each working day at Employment Service offices and
search for work while receiving professional retraining.
Fitch Ratings has reportedly given a verbal okay to the 2004
budget, and will not downgrade Israel's credit rating. The
agreement with the US providing Israel with loan guarantees
requires Israel not to exceed a 3 percent GDP deficit.
However Washington has apparently already approved the move,
and no sanctions are therefore expected.
"We are not making any deal with the Bank of Israel,"
Minister Meir Sheetrit said. "We hope that the Bank of Israel
will continue to gradually drop nominal interest."
Netanyahu will be submitting the budget bill to the Knesset
for the first reading at the end of next month. The Finance
Committee and the other relevant committees will be required
to prepare the various items for the second and third
readings at the end of December.