2005 Budget Passes First Reading

UNCLAS TEL AVIV 000230

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN IS ECONOMY AND FINANCE GOI INTERNAL
SUBJECT: 2005 Budget Passes First Reading


This cable is Sensitive but Unclassified. Please handle
accordingly.

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Summary
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1. (SBU) The Knesset approved on January 12 the first
reading of the 2005 Budget and the 2005 Arrangements Bill by
a vote of 64 in favor to 53 against. The vote included a
number of surprises: Likud party rebels who are vehemently
opposed to disengagement and threatened to deep six the
budget vote to show their bloc's power voted with the rest
of their party colleagues to pass the bills. They were
joined by Sharon's new coalition partners, the Labor Party
(excluding Amir Peretz's Am Echad faction) and United Torah
Judaism. Opposition to the bill included Shinui, which ,
until leaving the government, had been one of the strongest
supporters of the GOI's economic policies. While the anti-
disengagement Likud MKs known as the rebels have already
raised the prospect of voting against the budget in its
second and third readings, today's first passage now gives
Sharon the room to move forward on disengagement.


2. (U) The Budget and Arrangements Bill will now move to
the Finance Committee and to other Knesset committees for
further review and discussion. The Budget must be passed in
second and third readings by March 31 or new elections must
be called. End Summary.

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NIS 1 Billion Lure Nets
The Required Votes
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3. (SBU) The 2005 Budget, which totals NIS 264.5 billion
(USD 59 billion),is essentially the same budget rejected by
the Knesset in early December, but with additional earmarks
demanded by the Labor and UTJ parties as a condition for
joining the Government. Press reports estimate that Labor's
fiscal demands totaled between NIS 600 million and NIS 700
million, whereas United Torah Judaism's demands stood at NIS
290 million. Finance Ministry contacts maintain that the
new budget maintains the expenditure framework agreed upon
by the previous coalition.

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The GOI's 2005 Economic Agenda
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4. (U) In his speeches before the vote, Netanyahu described
2003 as a year in which Israel's economic freefall was
slowed and 2004 as a return to growth. The objective for
2005 is to strengthen growth. Netanyahu stressed continuing
tax reduction, restricting increases in government
expenditures (to 1%),and limiting the 2005 budget deficit
to 3.4%, including disengagement.


5. (U) Beyond fiscal initiatives, Netanyahu referred to his
objectives for 2005 of implementing the Bachar capital
market and banking reforms as well as port reforms. He
raised GOI plans for the privatizations of Bank Leumi and
Discount Bank, as well as of the oil refineries. Other
economic policies that the Finance Minister said the
Government intends to execute include education reforms,
implementation of the Wisconsin Plan to bring more long-term
unemployed into the job market, electricity reforms, and a
new investment encouragement law.
Kurtzer