Identifier
Created
Classification
Origin
05TELAVIV1896
2005-03-28 15:37:00
CONFIDENTIAL
Embassy Tel Aviv
Cable title:  

SHINUI DECISION VIRTUALLY ASSURES PASSAGE OF 2005

Tags:  ECON IS ECONOMY AND FINANCE GOI INTERNAL 
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C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 001896 

SIPDIS

E.O. 12958: DECL: 03/27/2015
TAGS: ECON IS ECONOMY AND FINANCE GOI INTERNAL
SUBJECT: SHINUI DECISION VIRTUALLY ASSURES PASSAGE OF 2005
BUDGET -- FOR A PRICE

Classified By: ECONOMIC COUNSELOR WILLIAM WEINSTEIN FOR REASONS 1.4 (B,
D)

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 001896

SIPDIS

E.O. 12958: DECL: 03/27/2015
TAGS: ECON IS ECONOMY AND FINANCE GOI INTERNAL
SUBJECT: SHINUI DECISION VIRTUALLY ASSURES PASSAGE OF 2005
BUDGET -- FOR A PRICE

Classified By: ECONOMIC COUNSELOR WILLIAM WEINSTEIN FOR REASONS 1.4 (B,
D)


1. (C) Summary. Prime Minister Sharon appears to have
finally secured passage of the 2005 budget. On Saturday
March 26, PM Sharon and Shinui Knesset members Yosef (Tommy)
Lapid and Avraham Poraz reached agreement that Shinui would
support the second and third readings of the 2005 budget in
the Knesset the week of March 28. In exchange, Sharon
pledged NIS 700 million for key Shinui budgetary priorities
including support for universities, science, culture,
environmental causes, and citizen-soldier reservists. The
press reports that this is part of a package of around NIS
1.6 billion that will be paid to political parties to garner
their support of the budget.


2. (C) The view from the economic side has been positive: as
one Bank of Israel official told us, the most important
objective was to pass the budget. A contact in the Finance
Ministry's Budget Department said the Shinui deal would not
bust the budget, although it was likely to require another
round of across-the-board cuts in ministerial budgets. The
deal's real significance, of course, lies in the fact that
Sharon and his disengagement plan have just dodged the bullet
of new elections. End Summary.

--------------
Follow the Money
--------------


3. (U) According to press reports over the past month, the
GOI has doled out a significant amount of money to secure
budget passage. In addition to the money now committed to
Shinui, the GOI has promised the following amounts for other
budgetary priorities:

-- United Torah Judaism won NIS 290 million as the price for
joining the coalition. The funds will be used for increasing
the budget of Orthodox Jewish religious institutions.
Ironically, it was the provision of these funds that led
Shinui to quit the government at the time of the first budget
reading in November 2004.

-- Labor won NIS 700 million as the price for the Labor
Party,s agreement to join the Coalition. These funds will
pay for the cancellation of cuts in allowances to the
elderly, increased support for Negev and Galilee development,
as well as increased support for health care.


-- On March 24th the GOI agreed to re-allocate an additional
NIS 150 million for health services.

--------------
Lapid Changes Course and Suffers Accordingly
--------------


4. (C) Shinui's Lapid has come under withering criticism for
his changing stance on the budget. There have also been no
shortage of news stories regarding internal strife within the
Shinui party itself. Lapid has not responded well to the
pressure, issuing conflicting statements about the reasons
for his changing views. On March 15, for instance, he told
Israel Radio that officials in Washington were pressuring his
party to support the budget.


5. (C) In view of his 180-degree course change over the last
weekend, Lapid was careful to cover his flank with members of
the party. According to Shinui MK Ilan Leibowitch, Lapid
called all Shinui MKs Saturday morning to discuss the
potential deal with them. Leibowitch says he told Lapid "You
can take the money and vote for it, or pass on the money and
abstain, but don't vote against the budget."

--------------
Others also not too happy with Lapid
--------------


6. (C) The PM's deal with Shinui has caused consternation
amongst those whose own budgetary and political priorities
may suffer as a result. Shas rejected all proposed attempts
to find alternatives to cuts in child allowances that they
claimed would enable the party to support the budget. MK Eli
Yishai, head of Shas, rejected all proposals, and adhered
continuously to the position that the budget did not provide
solutions to the problems of poverty and distress in weaker
sectors of the economy. Shas MK Meshulam Nahari told
political officer that he was very angry about the Sharon -
Lapid deal, charging that the deal would come at the cost of
suffering children and people who can't afford medications.
Nahari very matter-of-factly noted that, as a result of the
deal, "the government won't fall, the budget will pass," but
added that Shas would "find other opportunities to bring down
the government."


7. (C) Some claimed that Lapid had made a long-term tactical
error in making the deal. Labor MK Michael Melchior, for
instance, told political officer that Lapid had "become the
laughing stock of the country" for repeatedly promising to
vote against the budget, only to drop his objections in the
end.

-------------- --------------
The Economists' View: Budget Passage Worth the Compromises
-------------- --------------


8. (C) On the economic side, most observers thought the deal
made sense and were not overly concerned about the cost to
the overall budget. Finance Ministry Deputy Budget Director
Yossi Gordon said that the GOI would maintain the budgetary
framework, in spite of the new obligations to Shunui: "We'll
just go back to the Ministries with another 3%
across-the-board cut..." The Bank of Israel's Research
Director, Karnit Flug, said that she is neither surprised
that Shinui ended up deciding to support the budget nor
surprised that it obtained quite a bit for its yea vote. She
also said she was confident the GOI could find a way to pay
for the Shinui deal without breaking the budget.

--------------
Comment: It's the Disengagement, Stupid
--------------


9. (C) When all is said and done, however, the real
significance of the Lapid-Sharon deal is not economic.
Passage of the budget means that Sharon can pursue
disengagement unemcumbered by fears of new elections.

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