The cabinet on Sunday approved a budget framework for 2009 and 2010 that would increase spending by 1.7 percent to help the country recover more quickly from the global financial slowdown. Finance Minister Yuval Steinitz. Photo: Ariel Jerozolimski Under the plan, the government will run a deficit of 6% of gross domestic product in 2009 and 5.5% in 2010, the Finance Ministry said in a statement. "Approval of a responsible budget will bring Israel out of the economic crisis sooner than expected," Prime Minister Binyamin Netanyahu said at the weekly cabinet meeting in Jerusalem.
"Tens of thousands of Israelis are being fired, and we owe it to them to do everything possible to stop the spread of unemployment," he told Army Radio. Netanyahu's and Finance Minister Yuval Steinitz's budget plan for 2009-2010 would cut personal and corporate taxes and provide billions of dollars in loan guarantees for manufacturers to lift the economy out of its worst-ever recession. The Bank of Israel forecasts the economy will contract 1.5% this year, the worst since Israel was created in 1948. The jobless rate was 6.9% in February, and unemployment is predicted to increase to 7.6% in 2009 and 8.5% next year, the Finance Ministry said last week.
The government said meeting its budget-deficit projections would require cutting NIS 14 billion in planned spending to offset lower tax revenues. Steinitz said the government must also maintain fiscal responsibility during times of economic crisis. "While there are many important goals, including security, health and education, we are battling to save the economy and preserve the jobs of all citizens," he told reporters after the cabinet meeting. The cabinet's approval of the budget will allow the government to stem the increase of unemployment, Steinitz said. The government is in talks with the Histadrut and business leaders in an effort to reach a "package deal" on the budget, he said. Previous governments have reached such deals with labor and business leaders to make budget cuts without triggering strikes.
Cabinet members from Labor and Shas said they would oppose Steinitz's plan to limit the proposed budget deficit to 6% of gross domestic product because the spending cuts could hurt social-welfare programs. "Against the background of this crisis it is appropriate to widen the framework of the budget a few percentage points," Welfare Minister Isaac Herzog (Labor) told Army Radio.
The cabinet approved a NIS 313.3b. budget for 2009 and a NIS 318.4b. budget for 2010. The Finance Ministry projects that the budget deficit will shrink to 3% of GDP in 2011, 2% in 2012, 1.5% in 2013 and 1% in 2014. The government will submit its full budget plan to the Knesset in mid-June. It has until mid-July to win Knesset approval for the package. This will be the first time Israel has a two-year budget.
