Cabinet passes austerity budget by wide margin

Ministers vote for nearly across-the-board ministry funding cuts, VAT and income tax rises; tourist exemption from VAT preserved

Yair Lapid (center), and Tzipi Livni (right), with Moshe Ya'alon (left) at a 2013 cabinet meeting. (photo credit: Emil Salman/Pool/Flash90)
Yair Lapid (center), and Tzipi Livni (right), with Moshe Ya'alon (left) at a 2013 cabinet meeting. (photo credit: Emil Salman/Pool/Flash90)

After several stormy weeks of public debate, the government passed a two-year budget plan early Tuesday morning, calling for nearly across-the-board cuts in ministry funding.

After a day of marathon meetings that stretched from Monday morning to nearly 6 a.m. Tuesday, the Cabinet voted 20 to 1 to pass the 2013-2014 budget, which will go to the Knesset for final approval next month.

The sole holdout was Environmental Protection Minister Amir Peretz from the Hatnua party.

The budget, which attempts to partially rectify a NIS 39 billion deficit, includes two percent budget cuts for all ministries in 2013, excluding Defense, Education and Welfare. The number will rise to three percent in 2014, and is designed to make up for several changes made by the Cabinet that strayed from the original treasury proposal.

Among those changes were smaller than planned cuts to defense spending, which will be slashed by NIS 3 billion and not NIS 4 billion, and continued funding to the Haredi education system, after a deal was signed late Monday for ultra-Orthodox schools to begin teaching state-mandated core subjects, such as English and math.

The budget also features a number of tax hikes, including a 1.5 percent increase in income tax and 1% rise in VAT sales tax. Parents will see cuts to child allowances, which will stand at NIS 140 per child per month and not be doled out on a rising scale by number of children.

The ministers voted not to cancel the VAT sales tax exemption for tourists, instead levying an extra 0.5% tax on profits of large corporations.

“The passage of the 2013-2014 budget is the first stage in a change of Israelis’ lives,” Finance Minister Yair Lapid said in a statement after the vote. He added that the government would soon also pass legislation for a mandatory army or national service draft, and that reforms would be brought forward aimed at creating affordable housing.

The proposal came under harsh criticism over the last several weeks, with some 10,000 people taking to the streets in Tel Aviv Saturday night to protest against some of the measures.

Opposition leader Shelly Yachimovich said the new budget was composed entirely of “dispair and featured no redeeming qaulities to encourage growth or hope for a better future.”

Netanyahu, Lapid and the whole government delivered a slap in the face of the public,” said Yachimovich.

On Monday, the government survived five no-confidence measures put forward by the opposition over the budget.

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