Jerusalem, 5 January 1995

ELEMENTS OF THE 1995 BUDGET

(COMMUNICATED BY THE GPO ECONOMICS DESK)

During the night of 29-30 December 1994, the Knesset passed the 1995 Government Budget. Budget spending for 1995 will be NIS 147.09 billion

(net), 8.5 percent larger, in real terms, than the 1994 budget of NIS 126.49 billion (excluding allocations added later during the year). The gross budget for 1995 is NIS 154.2 billion while the budget excluding debt repayment, is NIS 129.0 billion. The budget is divided into three major categories: the regular, development and investment, and debt repayment

(to the Bank of Israel) budgets. The regular budget of NIS 109.4 billion covers Government institutions, the defense, local authorities, and social services’ budgets. The development and investment budget of NIS 35.8 billion, includes investments in social services and economic infrastructure. The debt repayment budget transferred to the Bank of Israel for repaying loans and interest, is NIS 1.75 billion.

The Government has stated that its main goals for the 1995 budget are to continue to provide the combination of conditions necessary to ensure economic growth and stability, to decrease unemployment, and to absorb immigration. Thus, the Government is spending more money on improving infrastructure, education, and local authorities, and is budgeting funds to assist certain sectors such as the defense and health fund industries, and the kibbutzim in resolving their economic difficulties.

Social spending will rise 14% in 1995 due to the addition of more hours to the school week, the provision of a greater variety of services to the public, and wage increases in the public sector. Transfer payments and supports will increase by 6% in the 1995 budget due to more transfer payments to the local municipalities and to the universities. Direct investments in infrastructure will increase 19% due to greater investments in industrial and road infrastructure. Interest repayment will increase by 8% during the year because of payments being made on loans guaranteed by the United States. The granting of credit will drop by 6% in 1995 because the Government estimates that fewer mortgage loans will be made during the year.

1995’s budget continues the Government’s long-term objective of reducing its defense and loan repayment expenditures. In 1995, these two elements make up 48.8% of the budget, while they accounted for 50.7% of 1994’s budget. However, the Defense Ministry’s budget for 1995 will be NIS 25.03 billion, or NIS 1.9 billion higher than its 1994 budget.

According to the Finance Ministry, direct budgetary supplements due to the ongoing peace process are primarily going to three ministries: Foreign, Police, and Finance. Because of the peace process and the fruits it is bearing, the Foreign Ministry is receiving a budget allocation for 229 more positions, and the Police Ministry is receiving approximately NIS 50 million in budgetary supplements for an additional 1,300 positions as a result of implementing the Gaza-Jericho First Agreement with the Palestinians. The Finance Ministry is also receiving a larger budget in order to provide for employment for former employees of the Civil Administration, whose positions ended due to the agreements with the Palestinians, and to adjust for cooperation with the Palestinian Autonomy. Other budgetary supplements due to the peace process are approximately NIS 70 million for the Agriculture Ministry (the Ministry is scheduled to receive NIS 200 million over four years beginning 1.9.94), and approximately NIS 20 million for the Civil Administration.

According to figures provided by the Finance Ministry, the 1995 budget equals 49.6 percent of the Gross Domestic Product, while in 1994 the national budget equalled 47.8 percent of the GDP. The Finance Ministry has planned the budget deficit to be 2.75% of the GDP compared to a budget deficit of 3% during 1994.

The Government expects to receive income of NIS 119.11 billion in 1995, an increase of approximately 8% over income received in 1994, leaving a budget deficit of NIS 9.89 billion. Most of the income, NIS 87.94, will come from taxes, with 45.7% of this coming from direct taxes and 37.1% from indirect taxes. Due to changes in the tax structure, the Government will receive NIS 1.2 billion less in taxes during the year, compared to the NIS 1.5 billion less in taxes which it received in 1994 compared to 1993. However, due to expected economic growth, and the implementation of more effective collection methods, the Government expects to receive about NIS 6 billion more income in 1995. Other sources of revenue include remittances from abroad and other income.

Debate on the budget continued for a week preceding its passage reflecting the different opinions held by a members of the Coalition, and leading to the postponement of a companion piece of legislation to the budget the Economic Arrangements Law which allocates funds and provides guidelines for funding specific projects. As a result of its postponement, a number of amendments to the Law, such as an increase in the budget to the Druse sector, increased aid to farmers, and a reduction in National Insurance payments have not yet been implemented.