Treasury cutting defense budget by NIS 0.5 billion

Finance Minister setting deficit at 3% instead of 2.4%, growth target at 2% instead of 4%
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The treasury will probably propose a NIS 0.5 billion cut in the defense budget for 2002 and a total cut of NIS 3 billion from all ministries, Ha'aretz has learned.

The revised deficit target will be 3% of the GDP instead of 2.4%, and the growth target will be 2% or even less, instead of the originally planned 4%.

In their meeting Thursday night, Prime Minister Ariel Sharon and Finance Minister Silvan Shalom did not decide on final figures. It was agreed that the treasury would complete the paperwork and present the data to Sharon this week. Once Sharon and Shalom approve the revised budget for 2002, it will be brought before the government for approval; a special cabinet meeting may be convened this week for this purpose.

Sharon and Shalom have not yet decided whether the budget for 2002 will be approved by the end of this year or in the beginning of 2002. This depends on the cooperation of the coalition partners and on whether the legal advisers determine it to be permissible to introduce changes into the budget after it has already been approved in the first reading.

Shalom plans to meet personally each of the potential partners to the economic package deal: Histadrut Chairman, MK Amir Peretz, the Governor of the Bank of Israel, David Klein, and the Chairman of the Coordinating Bureau of Financial Organizations (representing primarily the manufacturers and contractors), Oded Tira. An agreement with Peretz about a salary freeze in 2002 would cut the budget by a further NIS 1.5 that would otherwise go to creeping wage raises (seniority and wage-scale climbs). Klein will be asked to slash nominal interest at a faster pace, and Tira will be asked to commit to create another 50,000 jobs. The treasury will contribute tax breaks for the lower economic strata and a guarantee to keep the payroll in the public sector as it is.

Concurrently, the treasury will also continue the work vis-a-vis Knesset Speaker Avraham Burg, in order to speed up the processing of the budget for 2002 and of the Economic Arrangements Bill by the Knesset committees. Talks with the Chairman of the House Committee, MK Yossi Katz (Labor), have been put off until Katz returns from abroad.

Former finance minister Avraham Shochat said that he would yield all his influence in the Knesset and at the Finance Committee to help Sharon and Silvan get the revised budget approved. "The prime minister and finance minister must take determined action and give the coalition members an ultimatum to back the bill or have the government dissolved."

All private-member legislation must be revoked, Shochat said, including the recently enacted law providing tax breaks to residents of the Negev. Salaries in the public sector must be frozen and the defense budget must be cut. The deficit must not be expanded, because this would make it very hard for the governor of the Bank of Israel to cut the interest rate, and would injure Israel's ratings on the international financial arena.

Shochat further said that the budgetary change creates a golden opportunity to introduce two parts of the Ben-Bassat reform in direct taxation, namely, the implementation of capital gains tax, which is socially just and would increase state revenues, and the switch from territorial to personal taxation.