Austerity Budget Still Portends Hardship for Weakest Sectors

United Torah Judaism MK Rabbi Yaakov Litzman branded the much-touted budget adjustments as “a sleight-of-hand by the Finance Ministry,” an attempt to make it appear that the severe austerity measures were being eased when in fact a “sea of decrees” remains in place that will spell economic hardship for the most vulnerable segments of the population.

In particular — belying the impression initially given to the MKs at Wednesday’s meeting —90 percent of the cut in the child allowance was left intact and will go into effect on August 1.

According to MKs from various parties and many reporters following the issue, the committee had been told on Wednesday that in negotiations with the Finance Ministry, the allowances for children over 10 will not be cut.

(The first round of cuts in child allowances was implemented in 2003 and only affected those born after that date. As a consequence, those children received much larger allowances. For instance, for the fourth child in a family, parents received NIS 459.

The Finance Ministry had agreed that to reduce their allowances to NIS 140, as proposed, was too steep a cut for families to handle. By contrast, those born after 2003 only receive NIS 175.

However, the committee was told on Thursday that the cuts will apply to all children, though it will be somewhat softer on those born before 2003.)

The cut in the child allowance will save the government treasury NIS 2.7 billion a year.

The Finance Committee has approved more than half of the items in the 2013-14 budget law. The voting began yesterday afternoon and ended at 4 a.m., and the committee reconvened Thursday to continue discussions.

The long hours were necessitated by the inescapable political reality that the budget must be passed in its final reading in the Knesset by the end of the month, or new elections will be called automatically.

Prime Minister Binyamin Netanyahu said he would take up the changes at next Sunday’s Cabinet meeting.

Children weren’t the only ones who did not fare as well as it first appeared.

Pressure from opposition MKs yielded a concession on individual income tax on salaries between NIS 14,000 and NIS 22,000. The Finance Ministry agreed to lower the tax hike on this bracket from 1.5 to 1.4 percent. That comes to a net change of 20 shekels a month. Those making less than NIS 14,000 will be cut by 1 percent (instead of 1.5), while those making more than NIS 22,000 will get a 2-percent tax hike.

Even the relatively minor easements will have their price tag. Netanyahu and Minister of Finance Yair Lapid said they will submit to the Cabinet for approval at Sunday’s meeting a NIS 1-billion cut in various ministerial budgets, in consequence of the “reduced austerity measures on the public” — referring specifically to the cancellation of the purchase tax on homebuyers and the tax on pension deposits.

The new cut in ministries’ budgets follows the NIS 500-million cut that has already been approved, and does not include the postponed salary hike for public-sector employees, cuts in welfare payments, and the reductions in the budgets of the Ministry of Defense, Ministry of Transport, and Ministry of Education.

On the revenue side, tax hikes will raise NIS 11.38 billion, as follows: VAT hike, NIS 4.6 billion; income tax hike, NIS 4.1 billion; tobacco and alcohol tax hike, NIS 1.18 billion; companies tax hike, NIS 600 million; dividends from government companies, NIS 500 million; purchase tax on land hike, NIS 200 million; and amendments to the Law for the Encouragement of Capital Investment, NIS 200 million.

On the spending side, budget cuts will save NIS 9.7 billion, with a defense cut of NIS 3 billion; a reduction in the child allowance of NIS 2.7 billion; a postponement of the public-sector pay hike, NIS 1.5 billion; an across-the-board cut in ministries’ budgets, NIS 1.5 billion; and Education and Transport Ministry cuts of NIS 500 million each.

The marathon 14-hour session at the Finance Committee was due partly to the hard work of hammering out compromises, and partly to the stalling of the opposition.

For example, when the committee’s legal adviser announced the Economic Arrangement Bill’s name, Meretz leader Zehava Gal-On raised an objection, requesting that the bill be named instead “Laws That Increase the Burden on the Middle Class and Weaker Sectors.”

That proposal and numerous others called for appropriate discussion and voting. It took nine hours just to approve the bill’s name and purpose.

This article appeared in print on page 6 of the July 19th, 2013 edition of Hamodia.