JERUSALEM — While the world’s attention focuses on Israel’s battle against Palestinian terror, the country is fighting on a second front as well — the economic one.
On Wednesday, Education Minister Limor Livnat joined Shas, United Torah Judaism, and Am Echad ministers in issuing threats to Prime Minister Ariel Sharon yesterday, saying they would quit if their ministries or special interests are cut in the economic plan Finance Minister Silvan Shalom was planning to deliver.
Sharon and Shalom decided late Wednesday night to delay the Cabinet meeting set for yesterday to vote on the plan, moving it to Sunday to allow the ministers reasonable time to review it. The delay prevented Shalom from facing a room full of ministers angry at him for failing to give them the plan days ago.
The angriest minister appears to be Livnat, who warned Sharon Wednesday night she would not tolerate Shalom making cuts in her budget based on their political rivalry.
“If the plan passes, I will not remain in my ministry even for a minute,” Livnat told Sharon according to a Channel 1 report. “The finance minister is intervening in my ministry for political, not professional reasons.”
Twenty-two Shas and United Torah Judaism ministers and Knesset members wrote Sharon a letter warning they would vote against the budget if it freezes the Large Families Law. Sharon told Foreign Minister Shimon Peres at a breakfast meeting the law would be frozen in the plan.
“The harsh economic situation in the country makes it imperative that those in the greatest economic peril cannot be harmed,” the letter said, referring to more than half a million children under the poverty line they say are helped by the law.
Sharon’s commitment to Peres indicates he has chosen to refuse the demands of Shas and United Torah Judaism in favor of those of Labor, which conditioned its support on a freeze in the law.
But Labor also is not satisfied and will likely face an internal battle over the economic plan.
Several Labor ministers, including Industry and Trade Minister Dalia Itzik, have warned they will not tolerate any cuts in their budgets.
“I will not agree to let them take a single [cent] from my ministry,” Itzik told the Labor Knesset faction. “The prime minister needs to take into account the situation in the economy. With unemployment beyond our worst projections, he can’t let my ministry be cut, and this faction better fight for me.”
Israel’s government has been looking for ways to halt the downward spiral caused by the double whammy of the high-tech bust and the precipitous drop in tourism since the al-Aksa intifada began.
On Sunday the Cabinet agreed, in a 14-13 vote, to shave $1.46 billion from next year’s budget. That comes on top of a $1 billion cut in August.
Slashing the budget will “put the economy back on the path of growth and employment in the second half of 2002,” said the director general of the Finance Ministry, Ohad Marani.
As a result of the latest cut, he predicted, “the economy will be able to return to its growth potential of 4 percent” next year.
Agreeing to make some cuts is one thing; deciding what to cut is quite another.
Israel’s annual budget debate is always long and hard-fought, pitting the prime minister against Knesset members whose votes depend on funding for their constituencies.
The budget can be the straw that breaks a government’s back: Under Israeli law, if a prime minister cannot pass his or her budget or at least extend the current one, that premier’s government will fall.
Failure to pass his budget in December 1998 marked the beginning of the end of Prime Minister Benjamin Netanyahu’s administration.
In the coming days, Cabinet ministers will begin deciding where to slash.
Despite continuing violence, as much as $25 million could be cut from the defense budget.
Cuts in social services and education also are expected, likely drawing howls of protests from politicians representing the weaker sectors of society.
Faced with further fractiousness ahead, Sharon summoned coalition leaders to discuss the cuts. For now, he hopes to keep his coalition together by a common concern for the country’s economy.
Meanwhile, Sharon and Shalom are vowing not to raise taxes to make up for a shortfall in revenue caused by the recession.
“Something has changed in the world since Sept. 11: Countries have dropped forecasts, and here tax revenue has plummeted in the past few months,” the Finance Ministry’s Marani said. “By making these cuts and raising the deficit target we will avoid a real financial crisis.”
Yet there is one area of spending that may not be affected — transportation infrastructure.
Plans to finance bypass roads, six-lane highways and double-decker commuter trains are in the works. The hope is that a more developed transportation infrastructure will alleviate traffic congestion, create more jobs and spur economic growth.
Infrastructure investments are on the increase and now total more than $1.5 billion. The figure includes $1 billion for roads and highway arteries through various private financing initiatives.
During Sunday’s Cabinet meeting, the government also agreed to raise the limit of deficit spending from 2.4 percent to 3 percent of the gross domestic product.
This decision was criticized by the governor of Israel’s Central Bank, David Klein, who said it could harm the economy’s ability to grow.
Klein also said the planned increase in the country’s deficit could harm Israel’s ranking in the world’s financial markets, a development that could hurt foreign investments.