CABINET DECIDES TO CUT 1997 BUDGET

(Communicated by GPO Economics Desk)

Late last night (Sunday), 07.07.96, the Cabinet voted to approve budget cuts worth NIS 4.9 billion proposed by Finance Minister Dan Meridor and Prime Minister Benjamin Netanyahu. By a vote of 14 in favor, none against, and three abstentions (Foreign Minster David Levy, Tourism Minister Moshe Katzav, and Health Minister Tzahi Hanegbi), the Cabinet passed the comprehensive plan with its detailed cuts in order to ensure that the 1997 budget deficit does not rise above a level of 2.8% of the country’s Gross Domestic Product.

During the cabinet discussions, and also in statements to the public, both Finance Minister Meridor and Prime Minister Netanyahu stressed that the country’s weaker strata would not be hurt by the cuts. Finance Ministry Director-General David Brodet stated, "The budget cuts will not hurt the weaker elements of the population; most cuts will hit the upper and middle classes with a very minimal effect on the lower classes."

SECURITY/DEFENSE SECTOR:

The Finance and Defense Ministries reached an agreement according to which NIS 825 million will be cut from the security budget. The Finance Ministry originally requested cuts of NIS 1.7 billion from the Defense Ministry. A majority of the cuts will come from a reduction in pension terms for career IDF personnel. The Public Security Ministry will cut NIS 145 million from its budget and 400 positions. Also, security organizations will have NIS 40 million cut from their budgets. Funding programs for newly discharged soldiers will also be cut, and they will receive a grant worth 30% of the benefits they currently receive. The IDF Homefront Command, the defense industries and the Civil Guard will together cut NIS 40 million from their budgets. In addition, the program for renewing and updating the distribution of gas masks to the general public is being cancelled to save NIS 120 million; emergency civilian expenditures are being cut by NIS 60 million.

CHILD ALLOWANCES:

Cuts in child allowances will save the country NIS 850 million. Regarding the first and second children, families earning more than NIS 7,000 monthly will no longer receive allowances. Families earning between NIS 4,500- 7,000 monthly will have half of the allowance cut, while those earning less than NIS 4,500 will receive the full allowance. Families with more than four children will receive the full allowance for each child.

HEALTH:

The Health Ministry will cut NIS 500 million from its budget. Much of this will come from payments for medical services including visits to doctors, which will now cost NIS 10 per visit and NIS 20 for a visit to a medical clinic. Payments for the visits have an upper limit of NIS 50 per month, while those receiving welfare or living subsidies will pay a smaller fee and have a smaller upper monthly limit. The Health and Finance Ministries decided that they will formulate details on how the funds will be collected within one month.

EDUCATION:

The Education Ministry will cut NIS 400 million from its budget. Plans for extending the school day have been delayed by five years, while programs for building more classrooms and climate-controlling classrooms have also been delayed. Additional instruction hours, occurring from natural growth in the population, will be cut in 1997-98. Cuts of NIS 40 million will also occur in higher education.

FINANCE MINISTRY:

The Finance Ministry will cut NIS 12 million from its budget and NIS 280 million from different regular expenditures and from its development budget.

HOUSING AND CONSTRUCTION:

The Housing and Construction Ministry will cut NIS 259 million from its budget. The cuts will mostly come from its regular budget, from scaling back infrastructure replacement in older neighborhoods and improvements in public institutions, and in other cuts.

INDUSTRY AND TRADE:

The Industry and Trade Ministry will cut NIS 235 million from its budget. NIS 42 million will be cut from its industrial development budget, NIS 52 million from the Chief Scientist’s budget, and NIS 75 million from its regular budget. The ministry will also cease its venture capital fund for helping the local movie industry. Changes will also occur in investment incentives for industry and tourism. Grants to approved projects in Development Area "A" will be cut from 34% to 20%, while approved projects in Development Area "B" will be cut from 20% to 10%. Investment grants in agriculture projects will also be cut.

CANCELLATION OF BENEFITS TO SENIOR CITIZENS:

Cancellation of certain benefits to senior citizens will result in savings of NIS 160 million. The recently enacted Veteran Citizens Law will be cancelled. Though discounts in public transportation and medicines will continue, other discounts such as those in the national television tax and local property taxes will be cancelled.

BUDGET CUTS IN OTHER MINISTRIES/AUTHORITIES:

Interior Ministry and Local Authorities: NIS 80 million

Public Works Department: NIS 36 million

Foreign Affairs Ministry: NIS 25 million

Religious Affairs Ministry: NIS 25 million

Immigration and Absorption Ministry: NIS 25 million

Agriculture Ministry: NIS 25 million

Water subsidies for agriculture and industrial uses: NIS 3 million

Transportation Ministry: NIS 20 million (the cost of public transportation will increase by 13% in August 1996)

Communications Ministry: NIS 18 million

Tourism Ministry: NIS 15 million

Science Ministry: NIS 11 million

Prime Minister’s Office: NIS 10 million

Justice Ministry: NIS 10 million

Labor and Social Welfare Ministry: NIS 10 million

National Insurance Institute: NIS 5 million

Energy Ministry: NIS 7 million

Israel Lands Authority: NIS 5 million

Environment Ministry: NIS 5 million

Knesset: NIS 2 million

President’s Office: NIS 250,000

Budget cuts will also affect employees in all parts of the public sector. In 1997, the number of employees in the public sector government, local authorities, and government-owned companies will be reduced by 2%, and by 1% in each of the following four years. There are currently approximately 600,000 workers in the public sector.

National lottery winnings over NIS 1,000 will be subject to a 20% tax. The Free Export Processing Zone planned for the Be’er-Sheva area will be cancelled, as will be free health care for school pupils and a special program for new immigrant scientists.