CABINET’S BUDGET DECISION 2 JULY 1996

(COMMUNICATED BY GPO ECONOMICS DESK)

In a special cabinet session today (Tuesday, July 2), the government decided that the 1997 budget will be cut by NIS 4.9 billion. In a 12 to 5 vote, the cabinet adopted the proposal submitted by Finance Minister Dan Meridor and Prime Minister Benjamin Netanyahu, as opposed to the more moderate budget cut plan proposed by Defense Minister Yitzhak Mordechai.

Finance Minister Meridor commented that the precise areas in which the budget cuts will occur must still be decided by the government. He said that deliberations over specifics will take place early next week with a decision likely to be approved before PM Netanyahu’s visit to Washington, DC.

In addition, the cabinet decided that the general budget deficit the domestic budget deficit plus the deficit from abroad (excluding credit) for 1997 will not rise above 2.8% of the Gross Domestic Product. Using the current system for measuring the deficit, the planned domestic budget deficit (excluding credit) for 1997, after cuts, is expected to be 2.0%, with a foreign budget deficit of 0.8%. However, if the cuts are not implemented, the domestic budget deficit (excluding credit) alone, for 1997, is expected to reach 3.6% of the GDP.

The government also decided to hold spending in 1997 to NIS 146.6 billion and have revenues of NIS 137.3 billion during the year. Additionally, government spending will be held to 46.7% of the GDP in 1997, 46.2% in 1998, 45.7% in 1999, 45.2% in 2000, and 45% in 2001.

According to Finance Minister Director-General David Brodet, the ministry is introducing legislation for a multi-year framework for projected budget deficits of 2.4% in 1998, 2.0% in 1999, 1.75% in 2000, and 1.5% in 2001. Brodet remarked that the new deficit accounting system is in use throughout most of the Western world.

Brodet added that if mass privatization, one of the aims of the government, is realized, then the government will be able to lower both spending as a percentage of GDP and its planned budget deficits.