Ehrlich Calls for Tight Budget to Reflect Costs of Sinai Withdrawal

Finance Minister Simcha Ehrlich briefed the Cabinet today on his proposals for the next budget which will have to reflect the heavy costs of military withdrawal from Sinai and the construction of new defense lines in the Negev. The Cabinet met for five hours in special session devoted to budgetary matters. Premier Menachem Begin, who was hospitalized over the weekend for fatigue, remained at home on doctor’s orders and will be briefed separately by Ehrlich.

Ehrlich reportedly outlined a program of tight controls on government spending and a freeze on individual incomes and expenditures for the 1979-1980 fiscal year. He is said to want defense spending held to a minimum because of the expected financial burden of dismantling Israel’s infrastructure in Sinai under terms of a peace treaty with Egypt. Consumers will face new hardships as a result of further cuts in government price subsidies for food.

The Treasury believes that if its plans are adopted inflation can be held at 30 percent in the next fiscal year, a substantial drop compared to the present rate. The plans would discourage wage and salary increases from rising in real terms above the inflation rate although employed persons would continue to receive cost-of-living compensation up to 70 percent of inflationary increases. One goal set for the next fiscal year is to close Israel’s balance of payments gap.

Officials said that the proposed measures would not hurt low income groups but some independent economists believe otherwise.

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