"The 1% economic growth forecast for 2003 is less conservative than it was when submitting the budget," said Finance Ministry director-general Ohad Marani in an interview to TheMarker on Tuesday.

Although he feels the forecast is still within the bounds of reason, "the safety margins around it are narrower now," hence his cautious tone, he says.

On September 2, the Finance Ministry published figures on tax revenues, which are falling short of expectations. Revenues for August were 12% lower, in real terms, than in the same month a year ago. Marani said at the time that a billion-shekel hole had been created. Yesterday he explained that his words should be interpreted as a voice of caution.

The August figures could have been a glitch, he added. "I don't know what will happen further down the line." In any case he has launched a team, headed by himself, to keep close track of the state's tax income. The team was, however, unable to come up with an explanation for the low August figure.

"There may be a certain drop in tax collection, but it is still within the realm of control," Marani said. "In any case, if the drop requires adjustments, we cannot cut wages or investment and development budgets. So the first thing to do is cut the spending budgets of the ministries." But even that budgetary leeway is limited, he admitted, and refused to name figures. He also refused to describe the extent of a putative budget cut if the reduced spending is of no avail.

TheMarker: Do you think the Finance Ministry should take action to boost the markets, where bond yields are rising, and the shekel and share prices are falling?

Marani:

"These are very weighty, sensitive systems. I prefer to wait for the October figures."

What are the government's chances of pushing the 2003 budget through Knesset?

"Support for the budget seems to be growing." Likud's partner in government, Labor, is sending messages that the budget is appropriate after all, Marani claims, adding that Laborites had supported the budget in government debates, but that Labor leader Binyamin Ben-Eliezer had imposed a veto.

On what would you compromise to get the budget passed?

"We will not change the principles of the budget the size of the deficit and the absolute magnitude of the budget. Beyond that, I don't know where we will compromise, because the focus of the participants in the approval process is diverse."

Is the budget missing elements that should have been included?

"I supported totally abolishing child allowances, and a shift to a tax credits system according to the number of children, with special arrangements for people who don't make enough to be taxed. Populations who work should get more of everything.

"The system has created a situation where a person who doesn't work gets more support and aid from the state than a person who does, and whose income from work, not from government handouts is about the same. People earning minimum to average wages have no desire to move from the subsidies market to the labor market. We are guilty of creating that situation.

"No sector in the State of Israel should receive support beyond a number of years. Even yeshiva students should receive support for no more than three years, after which they should go to work.

"Everybody fixates on the absurdities of the government's various transfer payments, but there are bigger absurdities in the sphere of housing aid. For instance, if a person earns NIS 3,500 from work a month, that is considered income and reduced from his housing aid entitlement. But somebody getting that same amount as a handout is entitled to greater assistance."

Will amendments to the allowances send people not working today to work?

"I don't know whether the 2003 budget will have the ultra-Orthodox joining the workforce right away, but there is a change, and it is palpable. I believe that (the ultra-Orthodox party) Shas, whose ministers were fired from the government after opposing the budget and reversed their position (to be taken back), understood that.

"The subject of foreign workers also demands handling. Cheap labor is a bad thing, from several perspectives. If for instance a foreign agricultural worker sends 90% of his income home, his added value to Israel remains low. But handling the labor market has to be a comprehensive effort. Enforcing laws regarding foreign labor while ignoring the allowances achieves nothing."

Bank of Israel figures show that the government's debt to GDP rose beyond 100% in the first half of 2002.

"That ratio will apparently continue to climb in 2003."