NO BUDGET: NO COALITION -- AND VICE VERSA

UNCLAS SECTION 01 OF 02 TEL AVIV 003395 SIPDIS E.O. 12958: N/A TAGS: PGOV PINR IS SUBJECT: NO BUDGET: NO COALITION -- AND VICE VERSA -------------- SUMMARY -------------- ¶1. This year, the budget wrangling got under way early in the form of a government attempt to slash 2 billion NIS from its own 2006 expenditure in order to free up funds for rehabilitation of the Katyusha-battered north of Israel. Initial attempts to secure Knesset Finance Committee approval for the cuts have been stymied by Kadima's primary coalition partner -- Labor. Does this spell defeat for the governing party of PM Olmert over the 2007 budget? Not yet, but time, as well as funding, is in short supply. -------------- THE GOVERNMENT TESTS THE WATERS -------------- ¶2. When the government brought its proposal for a 2 billion shekel reduction in ministerial spending to the Finance Committee last week it did not anticipate the intensity of opposition it encountered from its Labor party coalition partner. The purpose of the cuts -- funding the physical reconstruction and economic rehabilitation of the north of Israel after a month-long Katyusha bombardment which paralysed business and industry -- is hardly controversial. But PM Olmert's Kadima party did not reckon with the "rebels" in the Labor party who dug their heels in at the first Finance Committee session scheduled to vote on the cuts and did so once again this week. The Labor "rebels" led by MKs Avishai Braverman and Orit Noked, both of whom are "standard bearers" for Labor's social agenda insist they object on principle and that Labor would be betraying its electoral commitments were it to support the cuts. The government now plans to bring the matter to the Knesset committee August 28 in a third attempt to secure approval. -------------- LABOR DOING WHAT LABOR DOES -------------- ¶3. Since 1977, when the Labor party lost its historic monopoly on government, it has found itself compromising its socio-economic platform in uneasy coalitions with the Likud and latterly with Kadima. Those Labor MKs who secure ministerial positions are eager to retain them while the disappointed legislators -- currently 12 in number -- operate as unofficial party whips, who seek to pull their ministerial colleagues back from the brink of betrayal of election promises. This perpetual coalition dissent could prove politically lethal, specifically in the context of the draft budget legislation for 2007 which will loom large in October, when the Knesset emerges from its summer recess. -------------- KADIMA -- WITH A COALITION TO LOSE -------------- ¶4. Coalition whip Avigdor Yitzchaki lost his patience this week -- or gave a good imitation of doing so. Following swiftly on the failed second attempt of his Kadima party to secure Finance Committee approval of the budget cuts, Yitzchaki threatened Labor with political divorce. In a deliberate leak to the media, Yitzchaki said if Labor refuses to comply with coalition discipline, he will advise PM Olmert to bid farewell to its primary coalition partner, in favor of an alliance with the right-wing Yisrael Beiteinu. Some media commentators took Yisrael Beiteinu chairman Avigdor Lieberman's remark, that his party would only join the coalition once Labor is removed, to mean that he was eager to enter the coalition. But Lieberman was making PM Olmert an offer he cannot afford to accept: 11 Yisrael Beiteinu MKs in place of 19 Labor members. It later emerged that media spin was responsible for promoting the dubious logic of such a coalition trade-off: A cursory check by an Israel Radio reporter revealed that no substantive contacts had taken place so far between Kadima and Yisrael Beiteinu. -------------- CAN KADIMA CONTROL THE COALITION? -------------- ¶5. Kadima's budget dilemma will be compounded, this year, by its precarious situation in the aftermath of Israel's failed Lebanon campaign. In addition to the traditional horse-trading which accompanies budget negotiations with all political parties, be they coalition or opposition members, Kadima may face a rearguard action by coalition parties using the budget as a pretext to abandon the partnership with Kadima if they perceive the coalition as facing political demise. From the perspective of Kadima's coalition partners, the budget is the ideal platform on which to base such a maneuver: The budget is a distinct issue of weight and seriousness; and dissent on a matter of principle, ostensibly unrelated to the delicate issue of who is to blame for the Lebanon debacle, would be a convenient pretext for abandoning a doomed political partnership. -------------- LABOR WEIGHS ITS OPTIONS -------------- ¶6. Labor is holding a midweek closed-door faction meeting. On the agenda is a discussion of the opposition of its representatives in the Knesset Finance Committee to the budget cuts. Labor chairman Amir Peretz and party whip Efraim Sneh are expected to demand the imposition of coalition discipline when the cuts are submitted for a third time to a Knesset Finance committee vote. Whatever is decided in the closed-door planning session, it is certain that the question of Labor's future in the coalition will be discussed. In law, the coalition has until the end of March 2007 to pass the draft budget by a simple majority vote. But Kadima and its coalition partners know that events unrelated to the budget could overtake them and force fateful decisions for their political survival in the near future. JONES