Prime Minister Ehud Olmert and Minister of Finance Ronnie Bar-On today failed to reach a decision on a large budget cut of NIS 2-4 billion in the 2008 budget at their meeting today. Present were Prime Minister's Office director general Ra'anan Dinur, National Economics Council head Prof. Manuel Trajtenberg, Ministry of Finance director general Yarom Ariav, and Budget Director Ram Belnikov.
Ministry of Finance officials presented the need to cut the 2008 budget and to make even deeper cuts in the planned 2009 budget in order to maintain the budget framework and avoid a breach in the deficit and government expenditure targets. They made it clear that the 2008 budget faces a shortfall of NIS 4 billion more than originally planned because of the budget supplements approved by the cabinet for defense, police, evacuees from Gush Katif, pay hikes for teachers and university faculty, increased allotments for Holocaust survivors and people over the age of 80, investment in the Arab sector, the new miluim (reserve IDF duty) law, and the negative income tax.
The Ministry of Finance officials prefer cutting specific items rather than making an across-the-board cut, because it is ineffective. The welfare and education budget will be unaffected by the budget supplements, but programs and projects will be postponed and government spending would be rescheduled.
Ministry of Finance officials added that the "automatic pilot" for government spending commitments has already exceeded NIS 20 billion in 2009, which will force the government to make a NIS 9 billion budget cut. The officials also oppose cutting VAT by half a percentage point to 15% and cutting the corporate tax rate by one percentage point.
Published by Globes [online], Israel business news - www.globes-online.com - on April 7, 2008
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