KNESSET FINANCE COMMITTEE CHAIR BRIEFS AMBASSADOR

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 002985

SIPDIS

E.O. 12958: DECL: 05/10/2015
TAGS: EFIN PREL KWBG IS ECONOMY AND FINANCE GAZA DISENGAGEMENT
SUBJECT: KNESSET FINANCE COMMITTEE CHAIR BRIEFS AMBASSADOR
ON ECONOMIC ISSUES

Classified By: Ambassador Daniel C. Kurtzer for Reasons 1.4 (b,d)


1. (C) Summary. Knesset Finance Committee chair Yaakov
Litzman discussed Israeli economic and political developments
with the Ambassador May 9. Litzman highlighted the difficult
budgetary situation created by disengagement, noting that his
committee had failed to agree that day on approving
legislation funding equipment needed for IDF personnel
involved in the withdrawal of Gaza settlements. (Note: This
legislation was finally approved May 10. End Note). Litzman
claimed to be concerned about the GOI's concurrent push on
disengagement and economic reform, stating that this was
undermining popular support for PM Sharon and the Likud when
both needed it most. The Ambassador raised USG concern over
settlement expansion, noting that funds saved here could pay
for disengagement. The Ambassador also raised recent GOI
procurement decisions where U.S. companies had been
disadvantaged. End Summary.

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Ambassador Expresses Concern over Settlements
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2. (C) In response to Litzman's expression of concern over
how the GOI could fund disengagement, the Ambassador noted
that the GOI and the Knesset could find the required funds by
reducing settlement expenditures. In fact, the Ambassador
added, settlement expenses potentially cost the GOI twice,
since the USG was supposed to deduct an amount equal to
settlement expenditures from the amount of loan guarantees
provided under the 2003 Loan Guarantee Agreement. Settlement
expansion also ran directly against USG policy and was thus
an irritant in U.S.-Israeli relations.

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Litzman: Don't Hit the People with Both Fists
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3. (C) Litzman turned to the subject of disengagement, noting
the GOI was making a mistake in pushing economic reform and
disengagement at the same time. "You can't hit people on
both the economic and the security front at the same time.
It's too much." Litzman expressed concern about
disengagement's chances of success: "No one knows what will
happen with disengagement. This is not Yamit," he said,
referring to Israel's evacuation of Sinai in the early 1980s.
Litzman enumerated cuts made under recent budgets, including
to funds going to the poor, to the elderly, and to the
ultra-religious. All these unpopular actions, Litzman
claimed, were costing the Likud dearly exactly at the time it
needed the people's support. The only reason the government
was not under more serious threat was because the Labor Party
was itself so badly split. "But who knows what will happen
in the next elections? Perhaps Likud will break up."

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Tax Reform? Unlikely, Litzman Says, Unless the USG Helps
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4. (C) In response to a question by the Ambassador about the
potential for further tax cuts by the government, Litzman
replied that he doubted further reforms would be introduced.
"Disengagement costs too much," Litzman said, "and the
government has no margin to pay for further tax cuts." On
the other hand, the GOI could afford both disengagement and
tax cuts if the USG were to "chip in" by increasing its
assistance levels to Israel. Increased assistance would also
help lessen the pain of disengagement, Litzman noted. The
Ambassador reminded Litzman of the current level of USG
assistance.

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Commercial Issues
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5. (C) The Ambassador raised U.S. concern over bilateral
commercial relations. He noted the increasing U.S. trade
deficit with Israel, and enumerated some specific instances
of counterproductive Israeli actions. He told Litzman of the
GOI decision to purchase a non-USG scanner for the Haifa
port, in spite of the funding coming from U.S. FMF funds.
This was not acceptable. The Ambassador also noted the GOI's
decision not to purchase refurbished stock from a U.S. firm
for its new train lines, in spite of the low cost of the U.S.
equipment. Litzman did not respond.


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