Defense spending, child allowances to be slashed in new budget

Cuts to allowances for children and a tax increase for consumers and top earners are reportedly among a number of austerity measures Finance Minister Yair Lapid will present to Prime Minister Benjamin Netanyahu Thursday, as the treasury attempts to rein in the country’s growing deficit.

Lapid’s plan, which also includes heavy cuts to the defense budget and other ministries, will likely face an uphill battle before it goes to a vote this summer. On Wednesday, ministers preemptively denounced the prospect of cuts and vowed to protect their budgets.

According to media reports, the plan includes an NIS 1.5 billion reduction in government allowances given to families on the basis of how many children they have, and a 1 percent hike in the VAT sales tax, bringing it to 18 percent.

The budget will also gradually cancel the VAT exemption on fruits and vegetables and will impose the sales tax in the southern resort city of Eilat, which is currently a duty-free zone.

The proposal also includes a 1% rise in income taxes for those making over NIS 20,000, a similar hike in corporate taxes, a NIS 3-4 billion cut to the Defense Ministry budget, and a NIS 6 billion cut to the rest of the ministries.

The plan would also freeze raises for government workers and new infrastructure development.

According to an estimation in the Hebrew daily Maariv, the budget will put an extra NIS 26.9 billion in the state’s treasury, which currently contains a NIS 39 billion deficit.

Finance Ministry officials stressed Wednesday that the presentation was not a final draft, but a suggestion of steps that should be taken to shrink the deficit, Israel Radio reported.

Lapid had warned upon taking office that he would have to make severe cuts, calling the deficit “monstrous,” and saying the country’s financial situation was worse than he thought.

Israel’s budget deficit in 2012 reached NIS 39 billion, or 4.2% of its gross domestic product, more than double the state’s originally projection for the shortfall. Officials have said new taxes and severe cuts in public expenditures would have to be put into place in the 2013 budget in order to bring the deficit under control.

The cabinet will have until June 9 to pass the budget, at which time the Knesset will have a day to vote to move it to the Knesset Finance Committee. The final budget will go up for final passage by the end of July.

On Wednesday, ministers fearful of possible cuts said they would fight any shrinking of their coffers.

At a press conference on Wednesday, Transportation Minister Yisrael Katz said that a reduction in his ministry’s budget “will cost the treasury billions. It will involve broken promises and a loss of trust by those residents who live in the periphery.

“After four years, there’s an attempt to exploit the budget crisis to set upon the billions designated for infrastructure works,” he added.

Minister of Public Security Yitzhak Aharonovitch also vowed to oppose any cuts to his ministry’s budget.

At a ceremony on Wednesday, Aharonovitch said he intended to do whatever it takes to prevent cutbacks, calling it a matter of “national interest.”