Identifier
Created
Classification
Origin
05TELAVIV4979
2005-08-11 14:55:00
CONFIDENTIAL
Embassy Tel Aviv
Cable title:
BUDGET BATTLE BEGINS
how-toThis record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 004979
SIPDIS
E.O. 12958: DECL: 08/10/2015
TAGS: ECON EFIN PGOV EAIR IS ECONOMY AND FINANCE GOI INTERNAL
SUBJECT: BUDGET BATTLE BEGINS
Classified By: Deputy Chief of Mission Gene A. Cretz for reasons 1.4 (b
) and (d)
C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 004979
SIPDIS
E.O. 12958: DECL: 08/10/2015
TAGS: ECON EFIN PGOV EAIR IS ECONOMY AND FINANCE GOI INTERNAL
SUBJECT: BUDGET BATTLE BEGINS
Classified By: Deputy Chief of Mission Gene A. Cretz for reasons 1.4 (b
) and (d)
1. (C) Summary: At approximately 0100 on August 10, the
Israeli Cabinet approved the draft 2006 Budget by a vote of
12-8. Negotiations over budget cuts in the wake of former
Finance Minister Binyamin Netanyahu's August 7 resignation
took longer than expected. The two main changes to
expenditures were a reduction in the cuts from the defense
budget and adjustments to the level of uniform cuts for other
ministries. In addition, the Cabinet made changes to the
draft economic arrangements legislation (EAL) and introduced
a policy that would partially liberalize the aviation sector.
The EAL has served as the main vehicle for structural reform
of the economy in the last few years. In light of a sobering
poverty report, publicly released as the Cabinet met, Prime
Minister Sharon promised to explore a negative income tax to
help the poorest sectors in Israel. The budget debate will
now move to the Knesset, when it reconvenes after summer
recess, before the October 31 deadline. End summary.
--------------
Monitoring the Market
--------------
2. (C) At the beginning of the Cabinet discussion of the
budget at 1000 August 9, PM Sharon stated unequivocally that,
"The Cabinet must pass the budget today." While technically
missing the deadline, the Cabinet's approval of the 2006
budget sent a message of stability before the opening of the
market. The Tel Aviv Stock Exchange ended the trading day up
one percent. Standard & Poor's Rating Services maintained
Israel's foreign currency rating on August 10 positing that
they expect fiscal and economic reform in Israel to remain on
track despite recent political turbulence. President of the
Bank of Israel, Stanley Fischer, stated to a local business
newspaper (The Marker) that "It is very important that the
government meet the deficit restrictions in its expenditures.
The government has the confidence of the markets and it is
forbidden that it lose that."
--------------
The Vote
--------------
3. (C) The poverty report was heralded by Labor Party Cabinet
members as evidence of the need for increased social spending
for the "weakest sectors." Media reports claim that Vice
Premier Shimon Peres demanded NIS 1 billion (about 220
million USD) for social spending in exchange for Labor's
votes. A rumor of a late afternoon offer from acting
Minister of Finance Ehud Olmert for between NIS 500-600
million (over 120 million USD) increases in social spending
was apparently ultimately rejected by Labor. According to
media reports, the majority of the Cabinet voted along party
lines (Likud in favor, Labor opposed),however Minister of
Agriculture Yisrael Katz (Likud) voted against the budget,
and Minister of the Environment Shalom Simhon (Labor) voted
in favor. Simhon explained his break with Labor's votes by
commenting to the press "As my ministry is poor, and in light
of the fact that I was not the decisive vote, I agreed to
back the proposal." Katz did not comment on his vote.
(Note: This was Katz's second vote against the Likud in the
Cabinet. He also voted August 7 against implementation of
the disengagement plan. End note).
--------------
Changes to the Budget
--------------
4. (C) The primary changes in budget expenditures were a
trade off between reducing cuts to the defense budget and
increasing the budgets cuts of other ministries. The cuts
for the Ministry of Defense budget were slated to be 1.5
billion NIS; however that figure fell to 650 million NIS
after negotiations late in the evening of August 8. The
other ministries were facing a total of 1.1 billion NIS in
cuts, but are now forecasted to lose 2 billion NIS from their
budgets. It is clear that the Minister of Health and
Minister of Environment both expect to get more money in
their 2006 budgets (both voted in favor of the budget).
Haaretz reported on August 11 that Director of the Budget at
the Ministry of Finance, Kobi Haber, planned to increase the
across-the-board cuts in the budgets of ministries to seven
percent (versus four and a half percent as proposed in the
first draft of the budget). In addition, press reporting
claims that the MoF will cancel 500 million NIS in
development assistance for the Negev.
--------------
Changes to the EAL
--------------
5. (C) The Cabinet also approved a clause in the Economic
Arrangements Law that will call upon the Minister of
Transportation to consult with the Ministry of Tourism, a
representative of the PM's office, and the Ministry of
Finance whenever a foreign air carrier wishes to alter their
flight schedule. Previously, when a foreign carrier
submitted an application, the Minister of Transportation in
conjunction with the Civil Aviation Authority, a department
of the ministry, had the sole authority to make a decision.
6. (C) In addition to aviation liberalization, a
representative of the Prime Minister's office noted his
intent to hold a meeting in September to discuss the
introduction of a negative income tax to help deal with the
income disparities highlighted in the newly released poverty
report. In the past, BOI Governor Fisher has publicly
supported exploring a negative income tax. The language
regarding the negative income tax in the current EAL is vague.
--------------
Next Steps
--------------
7. (C) The Cabinet's approval of the budget is the first step
in a long process. The budget will be presented to the
Knesset when it reconvenes after summer recess, before the
deadline of October 31. During the next few weeks Olmert
will attempt to make changes that do not disturb the basic
framework of the budget (deficit and expenditure targets),
but that allocate additional money for "weaker sectors." The
budget and EAL must be approved before March 31, 2006, or
elections must be held.
********************************************* ********************
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
SIPDIS
E.O. 12958: DECL: 08/10/2015
TAGS: ECON EFIN PGOV EAIR IS ECONOMY AND FINANCE GOI INTERNAL
SUBJECT: BUDGET BATTLE BEGINS
Classified By: Deputy Chief of Mission Gene A. Cretz for reasons 1.4 (b
) and (d)
1. (C) Summary: At approximately 0100 on August 10, the
Israeli Cabinet approved the draft 2006 Budget by a vote of
12-8. Negotiations over budget cuts in the wake of former
Finance Minister Binyamin Netanyahu's August 7 resignation
took longer than expected. The two main changes to
expenditures were a reduction in the cuts from the defense
budget and adjustments to the level of uniform cuts for other
ministries. In addition, the Cabinet made changes to the
draft economic arrangements legislation (EAL) and introduced
a policy that would partially liberalize the aviation sector.
The EAL has served as the main vehicle for structural reform
of the economy in the last few years. In light of a sobering
poverty report, publicly released as the Cabinet met, Prime
Minister Sharon promised to explore a negative income tax to
help the poorest sectors in Israel. The budget debate will
now move to the Knesset, when it reconvenes after summer
recess, before the October 31 deadline. End summary.
--------------
Monitoring the Market
--------------
2. (C) At the beginning of the Cabinet discussion of the
budget at 1000 August 9, PM Sharon stated unequivocally that,
"The Cabinet must pass the budget today." While technically
missing the deadline, the Cabinet's approval of the 2006
budget sent a message of stability before the opening of the
market. The Tel Aviv Stock Exchange ended the trading day up
one percent. Standard & Poor's Rating Services maintained
Israel's foreign currency rating on August 10 positing that
they expect fiscal and economic reform in Israel to remain on
track despite recent political turbulence. President of the
Bank of Israel, Stanley Fischer, stated to a local business
newspaper (The Marker) that "It is very important that the
government meet the deficit restrictions in its expenditures.
The government has the confidence of the markets and it is
forbidden that it lose that."
--------------
The Vote
--------------
3. (C) The poverty report was heralded by Labor Party Cabinet
members as evidence of the need for increased social spending
for the "weakest sectors." Media reports claim that Vice
Premier Shimon Peres demanded NIS 1 billion (about 220
million USD) for social spending in exchange for Labor's
votes. A rumor of a late afternoon offer from acting
Minister of Finance Ehud Olmert for between NIS 500-600
million (over 120 million USD) increases in social spending
was apparently ultimately rejected by Labor. According to
media reports, the majority of the Cabinet voted along party
lines (Likud in favor, Labor opposed),however Minister of
Agriculture Yisrael Katz (Likud) voted against the budget,
and Minister of the Environment Shalom Simhon (Labor) voted
in favor. Simhon explained his break with Labor's votes by
commenting to the press "As my ministry is poor, and in light
of the fact that I was not the decisive vote, I agreed to
back the proposal." Katz did not comment on his vote.
(Note: This was Katz's second vote against the Likud in the
Cabinet. He also voted August 7 against implementation of
the disengagement plan. End note).
--------------
Changes to the Budget
--------------
4. (C) The primary changes in budget expenditures were a
trade off between reducing cuts to the defense budget and
increasing the budgets cuts of other ministries. The cuts
for the Ministry of Defense budget were slated to be 1.5
billion NIS; however that figure fell to 650 million NIS
after negotiations late in the evening of August 8. The
other ministries were facing a total of 1.1 billion NIS in
cuts, but are now forecasted to lose 2 billion NIS from their
budgets. It is clear that the Minister of Health and
Minister of Environment both expect to get more money in
their 2006 budgets (both voted in favor of the budget).
Haaretz reported on August 11 that Director of the Budget at
the Ministry of Finance, Kobi Haber, planned to increase the
across-the-board cuts in the budgets of ministries to seven
percent (versus four and a half percent as proposed in the
first draft of the budget). In addition, press reporting
claims that the MoF will cancel 500 million NIS in
development assistance for the Negev.
--------------
Changes to the EAL
--------------
5. (C) The Cabinet also approved a clause in the Economic
Arrangements Law that will call upon the Minister of
Transportation to consult with the Ministry of Tourism, a
representative of the PM's office, and the Ministry of
Finance whenever a foreign air carrier wishes to alter their
flight schedule. Previously, when a foreign carrier
submitted an application, the Minister of Transportation in
conjunction with the Civil Aviation Authority, a department
of the ministry, had the sole authority to make a decision.
6. (C) In addition to aviation liberalization, a
representative of the Prime Minister's office noted his
intent to hold a meeting in September to discuss the
introduction of a negative income tax to help deal with the
income disparities highlighted in the newly released poverty
report. In the past, BOI Governor Fisher has publicly
supported exploring a negative income tax. The language
regarding the negative income tax in the current EAL is vague.
--------------
Next Steps
--------------
7. (C) The Cabinet's approval of the budget is the first step
in a long process. The budget will be presented to the
Knesset when it reconvenes after summer recess, before the
deadline of October 31. During the next few weeks Olmert
will attempt to make changes that do not disturb the basic
framework of the budget (deficit and expenditure targets),
but that allocate additional money for "weaker sectors." The
budget and EAL must be approved before March 31, 2006, or
elections must be held.
********************************************* ********************
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