ISRAEL AT WAR - DAY 145

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Knesset set to give final approval to 2017-2018 budget

Amid controversy over third-apartment taxation, municipal strike over slashed funds, coalition slated to okay two-year financial plan, boosting government stability

Marissa Newman is The Times of Israel political correspondent.

Prime Minister Benjamin Netanayhu (center) and Finance Minister Moshe Kahlon (left) during a Knesset session on December 5, 2016. (Yonatan Sindel/Flash90)
Prime Minister Benjamin Netanayhu (center) and Finance Minister Moshe Kahlon (left) during a Knesset session on December 5, 2016. (Yonatan Sindel/Flash90)

The Knesset on Wednesday was set to give its final approval to the NIS 906 billion ($236 billion) two-year budget for 2017 and 2018.

The plenum was set to vote on the biennial budget in its second and third readings on Wednesday afternoon, when it was expected to pass with full coalition support, clinching a significant boost for the government’s stability in the upcoming two years.

The budget was set at a net expenditure of NIS 446 billion ($116 billion) for 2017 and NIS 460 billion ($119 billion) for 2018, with an additional NIS 87 billion ($22 billion) in revenue-dependent expenditure.

Tension over the most controversial clause in the budget, the proposed tax on homeowners who own more than two pieces of real estate, lingered on Wednesday among some coalition members.

The Knesset’s Finance Committee last week approved the measure after all-night talks while capping the tax on the third apartment and beyond at NIS 18,000 ($4,700). The tax will be determined by the square footage of the apartment, but will not exceed the aforementioned sum each year. The softened version also exempts homeowners from the tax if two of their real estate properties are valued under NIS 1.15 million ($300,000).

According to the Finance Ministry, over 50,000 Israelis own three or more properties – a total of some 180,000 houses and apartments nationwide. The proposal has been touted as a way to drive down housing prices.

Finance Committee chairman Moshe Gafni and MK Rachel Azaria vote at the Finance committee, during a vote on the 2017-2018 state budget, at the Knesset on December 19, 2016. (Yonatan Sindel/Flash90)
Finance Committee chairman Moshe Gafni and MK Rachel Azaria vote at the Finance committee, during a vote on the 2017-2018 state budget, at the Knesset on December 19, 2016. (Yonatan Sindel/Flash90)

After the Finance Committee green-lighted the clause, the Knesset legal adviser sent a letter to chairman Moshe Gafni (United Torah Judaism) expressing concerns the committee approval did not comply with Knesset procedure and urging a re-vote. Gafni, however, declined to bring the provision to another committee vote, prompting some opposition members to pledge they will bring the matter to the High Court of Justice.

Gafni on Tuesday indicated in the Knesset plenum that he remains opposed to the third-apartment taxation, while noting that he managed to defang the proposal.

“I didn’t hide it [my opposition]. I am a man of the coalition. I accept the stance of the government. I try, as the chairman of the committee, to fix what needs fixing. During the overnight debate, they fundamentally amended the law. I’m not justifying it, I’m not expressing my opinion, I’m not the government. I just represent the Knesset, the committee,” he said.

But his fellow party member Uri Maklev urged the finance minister “to announce today that you are withdrawing” the third apartment tax.

“What will be remembered is the tax on a third apartment,” Maklev said Wednesday. “This is a discriminatory, harmful, and unequal law.”

Earlier in the week, the cabinet approved NIS 1.2 billion ($310 million) in cuts for the 2017-2018 budget in order to finance the relocation of the Amona settlement, establish the new public broadcasting corporation, and build new schools in ultra-Orthodox communities. Cuts to the education, health and welfare ministries and local authorities were reportedly among the austerity measures approved by ministers in the vote.

Prime Minister Benjamin Netanyahu leads the weekly cabinet meeting at the Prime Minister's Office in Jerusalem on December 18, 2016. (Marc Israel Sellem/POOL)
Prime Minister Benjamin Netanyahu leads the weekly cabinet meeting at the Prime Minister’s Office in Jerusalem on December 18, 2016. (Marc Israel Sellem/POOL)

The Finance Ministry said the slashed funds would also help cover costs of armored public buses in the West Bank, the employment of Palestinian workers in Israel and various coalition agreements reached since the budget was first proposed.

On Wednesday, an umbrella organization representing Israel’s local municipalities embarked on a country-wide strike in protest of the cuts, which they argue will cause damage in the hundreds of millions of shekels to local authorities. High schools and kindergartens as well as municipal offices were shuttered in cities across the country, and other basic municipal services were called off Wednesday in the open-ended strike.

Much of the opposition’s criticism of the budget on Tuesday and Wednesday focused on the eleventh-hour ministry cuts approved by the cabinet.

“All the positive things that the finance minister has done are erased when we come to the across-the-board cuts,” said Zionist Union MK Shelly Yachimovich on Tuesday. Yachimovich described those budget reductions as “lazy,” “dumb” and “indiscriminate” as well as a “guillotine coming down in one fell swoop.”

“Across-the-board cuts simply fall on all the offices at one time, rather than poring over the issue to see where you can cut and where not,” she said.

Her fellow party member MK Manuel Trajtenberg, an economist by profession, also slammed the move on Wednesday.

“The across-the-board cuts are part of the scam that is the Netanyahu government’s hidden taxes, which we are being forced to take from education, transportation, and infrastructure, which, according to Netanyahu’s view, the government does not need to provide, and the costs fall on us,” he said.

According to the final figures released by the Knesset’s Finance Committee on Tuesday, as it approved the budget for its final readings, the Health Ministry budget was NIS 33 billion ($8.6 billion) for 2017 and NIS 35 billion ($9.1 billion) in 2018, with another NIS 10 billion ($2.6 billion) a year for public hospitals; the Education Ministry budget was set at NIS 57 billion ($14 billion) for 2017 and NIS 59.4 billion ($15.4 billion) for 2018; the defense budget was NIS 70 billion ($18.2 billion) for each year, while religious services received NIS 640-660 million ($167 million-$172 million) annually. (All figures represent net value).

One office that was expected to see a large increase was the Transportation Ministry with nearly a NIS 19 billion ($4.9 billion) budget in 2017, and NIS 19.5 billion($5 billion) in 2018. These allocations were designed to cover construction on two new light rail lines in Tel Aviv, which has the greatest population density in Israel and where just 20% of residents use public transportation to get around. The government will also green-light a new light rail route in Jerusalem, an extension of the Haifa metro, a new line between the northern cities of Haifa and Nazareth, and a new train route between Hadera and Lod.

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