Proposed Fiscal 1971-72 Budget at $4.5 Billion; Based on Continuing Full Employment

The Cabinet met in special session today to consider Israel’s budget for fiscal 1971-72 which Finance Minister Pinhas Sapir, its author, said was based on a continuation of full employment. The draft was passed on to the government’s economic affairs committee which was also instructed to “enquire into the possibilities of reducing income tax rates on overtime and efficiency bonuses.” The proposed budget calls for expenditures of $4.5 billion compared to the $3.9 billion for fiscal 1970-71. Mr. Sapir said Israel’s gross national product was expected to grow by eight percent while private consumption would rise by only one or two percent thereby putting a brake on inflation. He predicted that investments would grow at an overall rate of 15 percent while industry as a whole would grow by 30 percent. Mr. Sapir said that Israel’s exports are expected to rise by 14 percent to reach a total of $1.5 billion but the country’s foreign trade deficit would increase slightly next year, by about $1.3 billion. He attributed the rising deficit mainly to the construction and purchase of ships abroad to modernize Israel’s merchant marine. He said the current foreign trade deficit was mainly the result of defense expenditures. The new budget is based on the possibility of tax incentives for harder work and increased productivity.

Taxes may be reduced on overtime pay and on premiums paid for higher production. Mr. Sapir has also proposed higher deductions for medical and social expenses but he wants stricter supervision of deductible allowances for business expenditures. The tax relief would apply to married women who earn wages in addition to their husband’s salaries. The budget is reportedly flexible in that it allows for the return from a war to a peace time economy and a shift back if necessary. Purely civilian projects provided for in the draft can be frozen and their funds switched to defense requirements whenever necessary. Mr. Sapir said recently that the advent of peace in the Middle East would put severe strains on Israel’s economy and might cause large scale unemployment until adjustments are made. A special staff of the Finance Ministry has been working on contingency plans for a peace time economy since the Suez cease-fire went into effect last August. Housing and other industries are expected to be ready to absorb any amount of manpower that might be released from the armed services. The new budget provides $315 million for housing alone. Israeli wage earners will get a two percent raise in January but it will be cancelled out by a two percent increase in the compulsory defense loan.