DEPUTY BUDGET DIRECTOR: GOI TO FORMULATE U.S.

C O N F I D E N T I A L TEL AVIV 001019

SIPDIS

E.O. 12958: DECL: 02/17/2015
TAGS: ECON PREL IS ECONOMY AND FINANCE GAZA DISENGAGEMENT ISRAEL RELATIONS
SUBJECT: DEPUTY BUDGET DIRECTOR: GOI TO FORMULATE U.S.
ASSISTANCE REQUEST SOON; EXTRA DISENGAGEMENT EXPENSES
PUSHED OUT TO 2006

Classified By: DCM Gene A. Cretz for Reasons 1.4 (b,d)


1. (C) Summary. Deputy Budget Director Yossi Gordon
informed Deputy Economic Counselor February 17 that the
Ministry of Finance was going to develop a request for U.S.
assistance to help pay for the military aspects of
disengagement over the next two weeks to one month. He also
said that the GOI would not allow the ever expanding costs of
disengagement to break the budgetary "framework" for 2005,
defined as a budget deficit limited to 3.4% of GDP and real
expenditure growth limited to 2%. The GOI would do this by
pushing disengagement-related expenses in excess of the
"framework" to 2006. End Summary.


2. (C) Gordon spoke in the wake of the February 16 Knesset
vote approving the disengagement compensation and evacuation
legislation. He said the compensation provisions in the law
would cost about NIS 4 billion, significantly more than
originally budgeted by the GOI. He noted that the
military-related costs of disengagement were also going up
with time and the GOI was now estimating these would cost
approximately NIS 2 billion. Nonetheless, Gordon stressed
disengagement-related expenditures would have "no impact" on
the 2005 budgetary framework. Specifically, the GOI would
stick to its limit of NIS 2.2 billion in
disengagement-related expenditures in the 2005 budget. This
meant that "the 2005 deficit will not exceed 3.4% of GDP."
Gordon said that the GOI would achieve this goal by pushing
2005 budget-breaking costs out to FY 2006: "Disengagement
will take place towards the end of the year, which means it
will not be difficult to push expenditures into 2006."


3. (C) When pressed for details on other budget-busting
aspects of recent 2005 budget developments, such as the MoF's
failure to repeal a number of special tax exemptions,
Gordon said he was not in a position to comment. "We've been
consumed with disengagement," he said, "and only now am I
turning back to the budget."

-------------- --------------
GOI To Begin Working on Request for U.S. Assistance
within 2 Weeks of Cabinet Vote on Disengagement
-------------- --------------


4. (C) Gordon said a group headed by MoF DG Bachar would
begin the process of formulating a request for U.S.
assistance within two weeks of the cabinet vote on
disengagement, which Gordon expected would take place
February 20 or 27. The request would focus primarily on
support for military-related costs of disengagement. He
noted that the formulation of such a request did not mean
that the GOI would definitely end up submitting it; that
decision would be taken at a later date.

--------------
Comment
--------------


5. (C) Although Gordon's comments show the GOI is committed
to meeting its amended 2005 budgetary targets, he did not
inspire great confidence in his government's ability to keep
its deficit on a downward path in 2006 and beyond. This
should be a major topic for the upcoming 2005 JEDG.

********************************************* ********************
Visit Embassy Tel Aviv's Classified Website:
http://www.state.sgov.gov/p/nea/telaviv

You can also access this site through the State Department's
Classified SIPRNET website.
********************************************* ********************
KURTZER