The budget controversy did not end with the budget’s passage in the Cabinet: Finance Ministry Budget Director Ram Belinkov has resigned.

Belinkov angrily announced his resignation within minutes after the Cabinet voted for the proposed national budget for 2009-10. The budget must still undergo Knesset Finance Committee scrutiny and probable changes before being passed by the Knesset.

Belinkov, who has served in the post for two years, wrote to Finance Minister Yuval Steinitz that he could not continue in his post in light of the way the government approved the budget. Specifically, Belinkov said that Prime Minister Netanyahu’s aide Ori Yogev had bypassed the Budget Department, and that the approved budget bears little similarity to the Budget Department’s original proposal.

Belinkov’s anger is directed at the “package deal” forced through by Yogev and Histadrut Labor Union chairman Ofer Eini. It involves the waiver of most of the welfare cuts that Netanyahu had announced, an increase in the defense budget, an across-the-board cut of 5.5-6 percent in all other government ministries, and a 3 percent yearly increase in government spending. 

The budget has been widely attacked for being anti-social, most notably because of the 1 percent increase in Value Added Tax, and the imposition of VAT, for the first time, on fruits and vegetables. The four Shas Party ministers voted against the budget for that reason. All of the other 26 ministers voted in favor.

Belinkov noted that the Finance Ministry had proposed only a 1.7 percent increase in government spending – compared to the 3 percent that was ultimately approved. Bank of Israel Governor Stanley Fischer also said that a budget that will increase the deficit is “dangerous” for Israel’s economy and may force a hike in interest rates, which could slow down or even halt an expected return to economic growth next year.

Belikov’s resignation was greeted with sorrow across the board, though less so by those who actively supported the budget.

Former Histadrut chief Amir Peretz, currently a “rebel” MK within the Labor Party - strongly opposes Labor leader Ehud Barak, who was instrumental in passing the budget - sharply criticized several aspects of the budget.  “There’s nothing more anti-social than an increase in VAT,” he said. “Countries around the world are trying to lower it, and we go and raise it! In addition, a 6 percent cut to all ministries is a tremendous amount. Some 80 percent of their costs are fixed costs, such as salaries, which can’t be changed, which means that this cut will come at the expense of the services that these ministries provide. This means something like a 35 percent cut in services to the public!”

Kadima Blames Netanyahu's Weakness

MKs in the opposition Kadima party blamed Netanyahu for the developments. Party leader Tzipi Livni said, "Netanyahu caved in to the pressures, even though he knew the dangers, and his budget will weaken Israel... If Netanyahu caved in so easily on this front, I wonder what will be on the diplomatic front." Former Finance Minister Roni Bar-On said, "There is no need to look further than Netanyahu; it's all his responsibility and his fault." 

The new budget provides for higher taxes on luxury cars, and workers with hefty salaries will pay higher National Insurance rates. On the other hand, income tax rates will drop 2 percent. All employees will have their yearly vacation pay halved for the next two years. Currently, this sum ranges between 1,590 shekels, paid in the summer, for rookies employees, to twice that amount for workers with 20 years’ tenure.

Reforms against fictitious tax invoices are included in the proposed budget, despite the industrialists’ objections; the Finance Ministry says without these changes, it loses up to 6 billion shekels a year. The budget also provides for a fund to be set up for manufacturing plants in peripheral areas.

Another controversial clause in the budget forces companies to negotiate with their labor unions.