Finance Minister Yair Lapid signed a compromise agreement with Histadrut Labor Union head Ofer Eini over the controversial proposed national budget, the two leaders revealed during a Wednesday evening press conference.
Eini had threatened a general strike last week in response to the austerity measures in Lapid’s original proposal, but called it off once he entered into secret negotiations with Lapid.
Under the revised agreement, a one percent wage hike previously promised to public sector employees in the summer will be deferred for most until 2015, as per Lapid’s original proposal, but in return they will now receive a 1% increase in their pension savings.
In addition, the Finance Ministry agreed to a package that will increase wages, benefits, pensions, and job security for part-time and contract workers employed by the state, something long sought by the Histadrut, which called a general strike last year over the issue.
At the press conference, his first since he became finance minister six weeks ago, Lapid acknowledged the public’s criticism of planned tax hikes and other cutbacks, but defended his budget, which he said for the first time in years imposes increased taxes on the rich and corporations, not just the middle class and the poor.
“Everybody agrees that we must erase the deficit, but everybody wants somebody else to pay fort it. I have no plans to hand out money and see us end up like Greece. It can happen, but not on my watch,” said Lapid.
Lapid, who in January elections campaigned on the platform of aiding the middle class, admitted that the group most hurt by austerity measures would be working Israelis, but said that as opposed to similar cases in the past, “I also went into the pockets of other sectors, including big companies.”
“This time we also cut into the budget of a sector long considered austerity-immune. But those who sat close to the plate are no longer there,” he added, alluding to Israel’s ultra-Orthodox population.
Lapid’s budget promises to significantly affect the ultra-Orthodox by reducing child subsidies and slashing state funding to educational institutions that don’t teach general studies like math and English.
Histadrut head Eini said the negotiations with Lapid were among the hardest he has encountered, and he is veteran of many. “There is no doubt that the country is in a serious crisis… and the workers, close to a million families, should bear part of the burden if that will help the Israeli economy even slightly. Hopefully, in the next few years growth will increase, then the problems will be solved.”
The agreement also stipulates that the Finance Ministry and Histadrut will enter into renewed negotiations, without preconditions, over public sector salaries and other issues in July 2014.
The ministry is looking to cut government spending by some NIS 6.5 billion (almost $2 billion) in 2013 and by NIS 18 billion (some $5 billion) in 2014, largely through the cuts in defense, child benefits (NIS 2 billion or $560 million) and transportation infrastructure projects (NIS 1.2 billion or $336 million).
Earlier on Wednesday, Prime Minister Benjamin Netanyahu voiced his support for the budget proposal, despite rumors that he intended to revoke some of the harsher budgetary measures, with one exception: Lapid’s proposed NIS 4 billion ($1.12 billion) cut to the defense budget, which the prime minister said must still be negotiated.
On Tuesday, Lapid signed a decree to immediately put into effect a raised sales tax on cigarettes, rolling tobacco, and cigars. The finance minister, under fire for the budget plan, also imposed a 10% tax on cigarettes held in stock by suppliers. At midnight, following Lapid’s order, the price of cigarettes rose by NIS 2.5 to NIS 3 per pack. The move is expected to raise an additional NIS 800 million per year.
The Finance Ministry also raised value-added tax by 1% (to 18%), increased income tax by 1.5% across the board, and boosted corporate tax to 26%, among other measures.
Amid the public discourse on the budget, a Channel 2 poll on Wednesday found that 42% of the voting public ranked Lapid’s performance as finance minister as poor, with 52% ranking him as good or mediocre, and with the remaining respondents offering no opinions.
When asked if appointing the freshman politician to the role was a mistake, 50% said yes. While 47% of Yesh Atid voters said they would still vote for Lapid if the elections were held today, 28% said they would vote for somebody else, with 28% saying they don’t know.
The survey, conducted by Shiluv Millward Brown research institute, polled 400 adults. The survey had a 4.9% margin of error.
The budget plan has been denounced by the opposition. Labor party leader and opposition head Shelly Yachimovich called it “sheer cruelty” and accused Lapid of abandoning the public.
Meretz head Zahava Gal-on said the plan is one that would “destroy the working public,” and that they constituted “a stark betrayal of Lapid’s promises to voters.” Gal-on also accused Eini of selling out the workers.
The budget plan is due to be debated by the Cabinet next week and will be subject to revisions before it is presented to the Knesset for review, after which it will be sent to the Knesset Finance Committee for further revisions before being formally presented to the Knesset for final approval.