Lapid defends austerity budget as a 'necessary evil'

Finance minister admits aggressive cuts and biting taxes included in budget "hurt the working public," but stresses plan "dips into everyone's pockets" • "I've only been the finance minister for six weeks, so I apologize if I haven't been able to solve all of the Finance Ministry's problems just yet," says Lapid.

Zeev Klein, Hezi Sternlicht, Mati Tuchfeld, Yehuda Shlezinger and Israel Hayom Staff

Finance Minister Yair Lapid and Histadrut labor federation Chairman Ofer Eini at their press conference, Wednesday | Photo credit: Dudi Vaaknin

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Finance Minister Yair Lapid held a press conference Wednesday in an attempt to rebuff the scathing criticism leveled at his austerity budget proposal. The government is expected to vote on the bill this Sunday.

The budget proposal, which aims to partially cover the state's 39 billion shekel ($11 billion) deficit -- which, at 4.2 percent of the GDP, was double the debt ceiling set by the Finance Ministry for 2012 -- includes a series of new taxes, a 25 billion shekel ($7 billion) cut to government spending and aggressive cuts to the defense, education, welfare, health and transport budgets.

Speaking to reporters with Histadrut labor federation Chairman Ofer Eini by his side, Lapid stressed that the budget's outline was "a necessary evil."

"This time we're dipping into everyone's pockets, not just the middle class," Lapid said. "I know tempers are running high and people are angry. I would be angry too. But we are facing a very difficult situation."

Lapid and Eini presented the outline of the agreement signed between the Finance Ministry and the Histadrut with the aim of preventing a general strike that would cripple the economy. The two were able to agree on a temporary, partial wage freeze for the public sector, a move the Histadrut fiercely opposed when it was first included in the budget bill.

Lapid rejected suggestions that he had buckled under the pressure exerted by the labor federation.

"The Histadrut has essentially given the state 1.5 billion shekels [$422 million] to help see it through this hard time. It has done its part and we should appreciate it," he said.

"This deal is not perfect and we still have things that we need to work out, but it will save the state money. I've only been the finance minister for a month and a half, so I apologize that I haven't been able to solve all of the Finance Ministry's problems just yet."

Eini rebuffed criticisms that the Histadrut automatically threatened to call a general strike, which would costs the state billions of shekels in damages a day, every time one of its member-unions faced the possibility of reform.

"There is no shame in being strong. We represent over a million workers and saying we have an 'inside track' to the government is incitement," Eini said.

"The State of Israel is facing a financial crisis and the members of the Histadrut understand that they have to shoulder the burden."

No one is immune

Lapid said tough measures were unpleasant but unavoidable.

"I would much rather be standing here giving out candy, but the situation doesn’t allow for that," he said.

"Everyone wants to resolve the deficit problem, but only as long as they are unaffected by the solution. Sometimes you have to do the right thing even if it is unpopular."

Lapid vowed that he would "not let Israel end up like Greece," which plunged into a deep recession following years of unchecked government spending, irresponsible fiscal policies and unsustainable deficit-to-GDP ratios that led to a sharp downgrade in the country's international credit rating and eventually forced Athens to ask the European Union and the International Monetary Fund to approve a bailout, to avoid the possibility that Greece would default on some of its debt.

"That's not going to happen on my watch," Lapid said.

He admitted that "the budget hurts the working public," but reiterated, "We're taking from the rich as well. We're raising taxes on capital gains and on luxury cars. The ministers and Knesset members are taking a pay cut. We're cutting budgets for sectors that so far were considered immune. We're not looking just at the middle class -- that was always the problem. Now we are changing the rules of the game."

Defending perhaps the most controversial article in the budget bill -- the cut to child benefits -- Lapid said, "This is what I mean when I say we're dipping into everyone's pockets. I'm not anti-haredi [ultra-Orthdox], but this was an immune sector and now it will have to share the burden."

Prime Minister Benjamin Netanyahu, who is currently on a state visit to China, expressed his support for Lapid's austerity budget proposal on Wednesday, saying that he had "no intention of intervening" in the matter. Netanyahu said that he would, however, weigh in on the planned 4 billion shekel ($1.1 billion) cut to defense spending, "which is still open for discussion."

The opposition continued to rebuke Lapid over the budget bill Wednesday. Meretz Chairwoman MK Zehava Gal-On accused him of "devising a cruel budget that is going the crush the working public and force tens of thousands of families under the poverty line. Eini has sold Lapid a bill of goods in the form of industrial rest at the workers' expense."

Meanwhile, the National Union of Local Authorities held an emergency meeting on Wednesday and threatened to launch a municipal services strike next week "unless the Finance Ministry comes up with reasonable explanations" for the planned 400 million shekel ($112 million) cut in its budget.