Tax revenue will be NIS 15 billion lower than expected and the government will be running a deficit of NIS 19 billion to NIS 20 billion this year, Yedioth Ahronoth reports.

At that level the deficit will be 3.8% to 4% of gross domestic product, twice the target set by government, according to the Finance Ministry.

The government intends to cover the shortfall by selling NIS 15 billion worth of bonds, five times the originally planned scope.

Moreover, the deficit could increase to 4.5% of GDP next year.

Meanwhile, Prime Minister Ariel Sharon and Finance Minister Silvan Shalom have decided to cut the 2002 budget by NIS 6 billion.

Even after the budget cut, the treasury will have to raise up to NIS 18 billion through bond issues. When added to the roll-over of old bonds, the government will be raising NIS 60 billion from the public during 2002.

PM starts canvassing for budget cuts among coalition

Moti Bassok of Ha'aretz adds:

The cabinet meeting on the NIS 6 billion budget cut is being delayed until Monday or Tuesday while the coalition members duke it out.

Coalition members scurried between of meetings yesterday, trying to reach agreements that would allow the state budget to be passed before its deadline on December 31.

Prime Minister Ariel Sharon met with the chair of the Shas faction, Interior Minister Eli Yishai, to canvas his support for the amended budget. Finance Minister Silvan Shalom did not attend the meeting due to prior engagements, his advisors said.

Meanwhile, Shalom intends to plow ahead with meetings on the economic package deal that is being negotiated between the treasury, private industry, the Histadrut labor federation and the Bank of Israel.

According to the finance minister, an agreement on a package that includes the freezing of wages in the public sector for the whole of next year and a commitment by the central bank to cut interest rates at a faster pace should contribute significantly to boosting the level of economic activity in the country.

Last night, Shalom met with Oded Tyrah, the chairman of the Coordinating Bureau of Economic Organizations, to discuss the economic package deal and amendments to the state budget for next year.

Shalom stressed that he would make every effort to cancel the private legislation that would cost the government billions in extra spending, adding that not implementing the NIS 6 billion cutback in the budget would put the economy on a dangerous path. The finance minister said that this would compel the government to make difficult and painful cutbacks for the next year or two, and that there was no room for political game-playing.

For his part, Tyrah advised Shalom against raising costs for industry, particularly by means of increasing direct taxes on the private sector (which has been reported as being on the cards), when the sector is already paying a heavy price in the current economic slowdown. Tyrah called for the package to be applied to the next three years.

After the meeting Tyrah said: "I was impressed with the prime minister's and finance minister's understanding of what has to be done in order to get the economy back on the path to growth."