The Ministry of Finance did not wait for the end of the Passover holiday to leak the list of measures that it wants to bring the budget into line. The media today prominently reported all the same old proposals and measures which have been around for weeks at the Budget Department, and which only waited for the arrival of the new finance minister.
It is hard to say that we are surprised by the proposals to cut public sector salaries or to raise VAT. The public has known for a long time about the plans for a NIS 40 billion adjustment spread over 18 months, and about the practical steps for achieving this. The publication therefore did not target the general public, but the political system and the groups whose consent is critical for passage of the ministry's plans.
Today's proposals, which will accompany the public debate until the Knesset passes the budget, should be judged from this perspective. The distinction can be made from two basic breakdowns: one between the revenues side and the spending side; and the second between the realistic proposals and the ones that are mere bargaining chips.
The first chip is cutting the defense budget. The list of proposed spending cuts that the government is leading is ingeniously topped by NIS 4-5 billion to be cut from defense. This is an annual ritual, in which the government approves a cut of this size in order to secure cuts in civilian budgets. The other part of the ritual comes a few months later, when the Knesset Finance Committee approves a government request to increase the defense budget. The forecast: déjà vu all over again. The Ministry of Defense will yell, but it knows the rules of the game. On paper, there will be a budget cut, but in practice, nothing will change.
The front against Histadrut chairman Ofer Eini. The government really wants to retract its agreement for public sector salary hikes, but it will need the Histadrut's (General Federation of Labor in Israel) consent. To apply some pressure, the Ministry of Finance pulled contingency plans to tax advanced training funds. The prognosis is a compromise to defer the salary hikes and the annual vacation bonus. The ministry will get NIS 2-3 billion.
Tax package: the Ministry of Finance wants to raise VAT and fuel and cigarette taxes. To achieve this, it included in its list of proposals to raise the companies tax, which is unacceptable to Prime Minister Benjamin Netanyahu; to cancel tax breaks for big corporations, which are unacceptable to Minister of Finance Yair Lapid's political supporters; and to tax employer provisions for employees' advanced training funds, which are unacceptable to Eini. The prognosis is higher VAT and gasoline excise, and the ministry will get NIS 3-4 billion.
An across-the-board tax cut, by another name. The Ministry of Finance's list includes no across-the-board tax cut, because of the phrase's bad name. The list includes "cutting inflated mechanisms at ministries", in an amount to exceed NIS 10 billion. How is this different from an across-the-board tax cut? Mainly in the fact that, this time, the Budget Department will tell the ministries where to cut, and will forego the fiction that there was an across-the-board tax cut in which the ministries would decide where to cut. The prognosis is that there will be a cut, in an amount close to what the ministry wants.
Those present and accounted for: this time, the Ministry of Finance's measures will be paid for by the haredim (ultra-orthodox), who until now evaded budget cuts. For example, the proposal to cut welfare and children's allowances. The settlers are part of the coalition, and should continue to benefit from government largesse. The problem is that the haredi political parties, which know a thing or two about how the government finances the settlers, will demand a hush fee.
Anyone who therefore dreams of major cuts in these items should prepare for token measures, at best.
Published by Globes [online], Israel business news - www.globes-online.com - on March 27, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013