US embassy cable - 05TELAVIV230

UNCLAS TEL AVIV 000230 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, IS, ECONOMY AND FINANCE, GOI INTERNAL 
SUBJECT:  2005 Budget Passes First Reading 
 
 
This cable is Sensitive but Unclassified.  Please handle 
accordingly. 
 
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Summary 
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1. (SBU) The Knesset approved on January 12 the first 
reading of the 2005 Budget and the 2005 Arrangements Bill by 
a vote of 64 in favor to 53 against.  The vote included a 
number of surprises: Likud party rebels who are vehemently 
opposed to disengagement and threatened to deep six the 
budget vote to show their bloc's power voted with the rest 
of their party colleagues to pass the bills.  They were 
joined by Sharon's new coalition partners, the Labor Party 
(excluding Amir Peretz's Am Echad faction) and United Torah 
Judaism.  Opposition to the bill included Shinui, which , 
until leaving the government, had been one of the strongest 
supporters of the GOI's economic policies.  While the anti- 
disengagement Likud MKs known as the rebels have already 
raised the prospect of voting against the budget in its 
second and third readings, today's first passage now gives 
Sharon the room to move forward on disengagement. 
 
2.  (U) The Budget and Arrangements Bill will now move to 
the Finance Committee and to other Knesset committees for 
further review and discussion.  The Budget must be passed in 
second and third readings by March 31 or new elections must 
be called.  End Summary. 
 
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NIS 1 Billion Lure Nets 
The Required Votes 
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3.  (SBU) The 2005 Budget, which totals NIS 264.5 billion 
(USD 59 billion), is essentially the same budget rejected by 
the Knesset in early December, but with additional earmarks 
demanded by the Labor and UTJ parties as a condition for 
joining the Government.  Press reports estimate that Labor's 
fiscal demands totaled between NIS 600 million and NIS 700 
million, whereas United Torah Judaism's demands stood at NIS 
290 million.  Finance Ministry contacts maintain that the 
new budget maintains the expenditure framework agreed upon 
by the previous coalition. 
 
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The GOI's 2005 Economic Agenda 
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4. (U) In his speeches before the vote, Netanyahu described 
2003 as a year in which Israel's economic freefall was 
slowed and 2004 as a return to growth.  The objective for 
2005 is to strengthen growth.  Netanyahu stressed continuing 
tax reduction, restricting increases in government 
expenditures (to 1%), and limiting the 2005 budget deficit 
to 3.4%, including disengagement. 
 
5. (U) Beyond fiscal initiatives, Netanyahu referred to his 
objectives for 2005 of implementing the Bachar capital 
market and banking reforms as well as port reforms.  He 
raised GOI plans for the privatizations of Bank Leumi and 
Discount Bank, as well as of the oil refineries.  Other 
economic policies that the Finance Minister said the 
Government intends to execute include education reforms, 
implementation of the Wisconsin Plan to bring more long-term 
unemployed into the job market, electricity reforms, and a 
new investment encouragement law. 
Kurtzer