Israel's cabinet approved the 2009 state budget draft on Monday, but doubts remain that political infighting and possible early elections could torpedo the bill in parliament.
The record 319 billion shekel ($91 billion) spending package was approved by a 13-12 margin after some 16 hours of debate in which cabinet ministers tried to win spending increases, largely for social programmes and defence, in exchange for their votes. In the end, Prime Minister Ehud Olmert and Finance Minister Roni Bar-On were able to persuade enough members of their own Kadima party and some coalition partners to support the budget, with some 7 billion shekels of broad spending reductions.
"Approval of the budget will reinforce economic stability which the Israeli market needs, especially during a period of economic slowdown and political uncertainty," Bar-On said.
"This is an important achievement for the government, which showed fiscal responsibility and chose to lead a consistent and clear socio-economic policy without breaking the fiscal framework and which achieves a balance between the economy's various needs," he added.
Israeli media reported approval came after Olmert threatened to resign if the budget failed to pass. Olmert, embroiled in a corruption scandal, has said he would not run in next month's Kadima leadership election and step down once a new government was formed.
If a new coalition cannot be formed, early elections could be called. In past years, differences over the budget have sometimes led to the government's collapse and new elections.
Should the budget not be approved by the end of March, new elections are automatically triggered. Transport Minister Shaul Mofaz, who is running for Kadima's leadership, voted against the budget on grounds that a decision on defence spending should wait until after the party primary. He was the lone Kadima minister to oppose the budget. Ministers in Kadima's main coalition partner, Labour, also voted against the budget, as did the ulta-Orthodox Shas party, which sought higher child allowances.
The approved draft kept an annual spending increase ceiling of 1.7 percent despite pressure by Labour to raise it to 2.5 percent. The budget is based on what analysts say may be overly optimistic economic growth estimate of 3.5 percent for 2009 and would create a deficit of 1 percent of gross domestic product. "There is no doubt whatsoever that if we had unlimited means everyone of us could fully allocate to the issues that we define as important and we could all celebrate the state budget very nicely," Olmert told ministers at the outset of the debate.
Olmert said 2009 was liable to be a very difficult year for the global economy and that loosening public purse strings more than planned was risky. "There is concern that unless we act responsibly, cautiously and with restraint, the great achievements of the Israeli economy ... the stability that we achieved, and the progress that we have made in all areas, will be undermined, heaven forbid," he said.