Prime Minister Benjamin Netanyahu said Wednesday he backs Finance Minister Yair Lapid's budget proposal, which includes a long list of austerity measures.
On Tuesday the PM said he would respond to the proposal only upon his return from China. Treasury officials fear Netanyahu may annul some of the proposed measures to shore up support at the finance minister's expense.
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Speaking to reporters on a Beijing-bound flight ahead of a meeting with Chinese President Xi Jinping, Netanyahu said, "I do not plan on intervening in the budget (proposal), as it was submitted to the government – apart from one issue that remains open – the security budget, which must be resolved."
Sources affiliated with the PM said he insinuated Tuesday that he might introduce some changes to the proposed budget.
Though Netanyahu has formally expressed his support for Lapid's economic plan, he reportedly implied, during a closed meeting, that he would cancel some of the measures.
Fellow Likud member MK Ofir Akunis wrote on his Facebook page: "The Finance Ministry has yet again proved its generosity when it comes to economic measures it is willing to inflict upon the public, but not everything published (Tuesday) will be authorized. The road to a responsible budget is still long."
Meanwhile, prices of cigarettes, cigars and tobacco were set to increase by 10% at midnight on Tuesday, after Lapid signed a special decree on Tuesday night.
Harsh economic measures. Lapid (Photo: Gil Yohanan)
The cost of a packet of cigarettes increased by NIS 2-3 (56-84 cents), and the tax on cigars was to rise from 75% to 90%. The move was expected to put an additional NIS 800 million ($224M) into the state's coffers.
The budget proposal for 2013-2014 includes cuts of NIS 6.5 billion (about $1.8 billion) in the government's activity in 2013, and NIS 18 billion ($5 billion) cuts in 2014.
The plan suggests that the Defense Ministry's basic budget for 2014 will stand at NIS 54.6 billion ($15.3 billion), a NIS 4 billion ($1.12 billion) budget cut. Treasury officials said the decision was subject to Prime Minister Benjamin Netanyahu's approval.
In addition, the plan proposes tax hikes which will come into force immediately, and others which will be implemented in the beginning of 2014. The tax hikes are expected to increase the State's income by NIS 4 billion ($1.2 billion) in 2013 and NIS 14 billion ($3.9 billion) in 2014.
The plan also includes a series of economic steps advanced by the Finance Ministry as part of the Arrangements Law.
According to the proposal, income tax will be raised by 1.5% as of 2014, value added tax will go up by 1% to a level of 18%, corporate tax will increase to 26%, and taxes on cigarettes and alcohol will be raised.
In addition, housewives will now be forced to pay for national insurance and health insurance.
The proposal includes an immediate 1% cut in manpower in the Civil Service, and another 1% cut in early 2014. In addition, no new positions will be approved in the Civil Service until 2015, and as of that year, the overtime budget will be slashed by 10%.
The plan also includes a NIS 1.5 billion ($420 million) cut in the education budget every year and a reduction of close to NIS 2 billion ($560 million) a year in child benefits. The Transportation Ministry budget will be cut by NIS 1.2 billion by postponing the ministry's road building projects across the country.
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