Following lengthy Cabinet deliberations, the government on
Monday agreed to cut NIS 6 billion ($1.5 billion) from the
state's 2002 budget. After the cuts, the proposed budget for
2002 is reduced by 2.4 percent to NIS 248.65 billion.
The Cabinet approved the spending cuts in a 22-6 vote. Five
of the six dissenting votes were cast by Shas. Debate on the
budget now moves to the Knesset Finance Committee in a bid to
meet the December 31 deadline. The deadline will probably not
be met.
Finance Committee chairman Yaakov Litzman (United Torah
Judaism) informed the government that the committee will not
be able to approve the budget by the end of the year. It
plans to review the spending plans of each ministry, he
said.
Rabbi Moshe Gafni and Rabbi Yaakov Litzman announced
unequivocally that UTJ will vote against the budget if the
Large Families Law is frozen. On Monday they arrived in the
Knesset to state their position while the Prime Minister was
in the middle of a government meeting on the budget cuts.
Upon their arrival, Prime Minister Ariel Sharon asked the
director of his office, Uri Shani, to meet with them. They in
turn informed Shani of their party's firm position and
requested that he relay it to the Prime Minister.
In his response to the two UTJ representatives, Mr. Shani
stated that he would inform the Prime Minister of UTJ's
position and would participate in the effort to find an
alternate solution to freezing the Large Families Law. He
explained that the economy is in a difficult situation, and
that when a decision to cancel all private legislation is
made there will be no choice but to cancel the Large Families
Law among them. The two UTJ representatives once more
declared that they could not approve such a step, and would
make every effort to prevent the actual freezing of the
law.
Support for the cuts by Labor Party ministers was ensured
after Prime Minister Ariel Sharon and Foreign Minister Shimon
Peres published a joint statement saying that Peres's talks
with Palestinian Legislative Council Speaker Ahmed Qurei were
aimed at bringing an end to terrorism and violence. Minor
revisions were also made in cuts planned for Labor-held
ministries.
According to the draft budget, there will be a freeze in
adjusting all NII benefits and public sector wages, with the
exception of disability payments. The official average wage,
to which a lot of payments and salaries are pegged, will not
be adjusted. NIS 1.3b. was slashed by a 3 percent across-the-
board cut in the budgets of each ministry. The freezing of
all private member's legislation, including the Large
Families and the Negev laws, as well as the abrogation of the
agreement to reduce university tuition, resulted in cuts
totaling NIS 1.45b.
The government also adopted a NIS 1.2b. cut in NII child
allowances by placing an income criterion on families
receiving these benefits. NII officials warned, however, that
this plan may be impossible to implement. If the income
criterion is deemed "too problematic," the cut will be made
by lowering the oldest age of entitlement from 18 to 16.
The defense budget was cut by NIS 1b. The 2002 defense budget
supplement will thus be only NIS 1.7b. Treasury officials
agreed to augment future budget supplements, however, at the
request of Defense Minister Binyamin Ben-Eliezer.
Concessions made to Labor-held ministries included a
reduction in the planned cut to the Science, Culture, and
Sport Ministry, from NIS 90m. to NIS 40m. Industry and Trade
Minister Dalia Itzik received an NIS 200m. for supporting
industrial firms in financial difficulties, rather than NIS
100m. planned by Shalom. Finally, Arab sector benefits were
cut by only NIS 30m., instead of the original NIS 120m.
The cabinet also empowered Shalom to make structural changes
in the way low income earners are taxed and to impose a new
tax on those with salaries above NIS 30,000 monthly during
2002. Besides this, no new taxes are to be imposed.
As part of the budget revisions, the projection for economic
growth in 2002 was amended downward from 4 percent to 2
percent of GDP, and the deficit target was raised from 2.4
percent of GDP to 3 percent.
The budget reductions were part of a package that included
moves on the part of the Bank of Israel. Bank of Israel
Governor David Klein reduced nominal interest rates by 2
percent down to 3.8 percent, the lowest in the country's
history. This rate is still more than 2 percent higher than
the interest rate in the U.S. which stands at 1.75 percent.
Three years ago the interest rate in Israel was 13.5
percent.
The package also included the removal of the ceiling on the
issuance of one-year Makam notes by the central bank (making
it possible to replace nonnegotiable Bank of Israel deposits
with Treasury bills traded on the Tel Aviv Stock Exchange)
and further liberalization of foreign-currency trading
including lowering the lower limit to which the shekel can
fall against the dollar, and also including the granting of a
permit to institutional investors to invest abroad.
There were also reforms in the labor market. Permits for
foreign workers will be reduced by 15,000 next year and 1,000
illegal foreign laborers per month will be expelled.
According to Treasury figures, the number of foreign workers,
excluding Palestinians, has reached 8.4 percent of the work
force. Unemployment is currently at 9.4 percent.
The Finance Ministry has proposed a NIS 250 million program
aimed at creating some 4,000 new jobs.
Said Finance Ministry Director-General Ohad Marani, "In fact,
we believe this program will spur economic growth and reduce
unemployment."
Sharon has little time to rest on his laurels, as he faces an
even tougher battle passing the budget in the full Knesset.
Shas and Labor legislators have said they may oppose the bill
unless deep cuts in social spending are revised.
If the Knesset fails to pass the budget or extend the current
year's budget by Dec. 31, the government will fall. However,
it is likely that it will at least extend the budget because
hardly anyone wants new elections now.
