C O N F I D E N T I A L TEL AVIV 006045

SIPDIS

E.O. 12958: DECL: 12/01/2014
TAGS: PGOV PREL IS GOI INTERNAL ECONOMY AND FINANCE
SUBJECT: BUDGET MAY FAIL, BUT SHRINKING SHARON GOVERNMENT
SURVIVES


Classified By: Political Counselor Norman H. Olsen for reasons 1.4 B an
d D.


1. (C) The anticipated 43-54 failure of PM Sharon's budget
late December 1, and the anticipated post-vote dismissal of
Shinui ministers, leaves Sharon with a Likud-only government,
but does not cause the government to fall. Sharon can bring
the budget back to the Knesset as many times as he wants.
Shinui Chief Tommy Lapid remains determined at mid-day to
vote against the budget because of Sharon's NIS 290 million
buyoff of UTJ's five votes, despite the fact that Sharon gave
him one "out" late November 30 with talk of the excessive
cuts already taken by the religious community and another at
noon December 1 with talk of possible budget allocations to
Shinui-preferred sectors. Lapid supposedly rejects a Shinui
abstention, which, with possible abstentions by Shas, the
Arabs, and two independents, would allow Sharon to win
43-42-35, and allow Shinui to remain in the coalition.
Lapid's rejection notwithstanding, noontime chatter in the
Knesset is of a possible Shinui compromise.


2. (C) Sharon today has 38 Likud votes; Likud MK David Levy
is against, and another Likud MK is hospitalized. If the
budget does fail, Sharon can try to buy additional religious
votes (Shas-11, NRP-6) via budget allocations altogether
totalling probably less than NIS 700 million. With possible
abstentions, that may be enough to win the necessary simply
majority for budget passage. If Sharon is determined to
bring Labor into the coalition, as Shimon Peres claims, then
he will need to address Labor's broader objections to both
the budget and to finance reform. Talk at mid-day in the
Knesset and from a Foreign Ministry official is of Labor's
demands really not being "monumental," but Labor MK Collete
Avital told poloff late December 1 that some Laborites will
want to re-write the budget. Since Labor will go for
disengagement anyway, and would make such a fractious
coalition partner, the possibility remains that Sharon may
string Labor along, much as he has been doing since last May.
Peres, and a Finance Ministry budget official who spoke to
econoff, say Sharon would use a failed budget vote to
demonstrate to Likud that it needs Labor. Amid leadership
turmoil and the return to party politics of former PM and
Labor leader Ehud Barak, Labor has put off setting a date for
party primaries, leaving the opening for unity talks that the
media says are to start 48 hours after Shinui is out of the
coalition.


3. (C) COMMENT: This could all be Sharon clearing the decks
now for disengagement, rather than waiting until closer to
the planned March 1 vote on first-phase disengagement. A new
coalition now with Labor, in particular, would also stymy
talk of new elections -- which are opposed by some 73 percent
of the public -- and leave Sharon clear to focus solely on
disengagement. If a unity government is to emerge, either
Labor will face a climbdown from its previous budget
rhetoric, or Sharon will have to accept further erosion of
his budget and economic reform plans. Sharon has
demonstrated clearly now for some seven months that he has no
aversion to governing from a minority coalition, building
issues-specific, ad hoc alliances.

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