Cohen-orgad Submits Austerity Budget to the Knesset for Fiscal 1984-85

Finance Minister Yigal Cohen-Orgad submitted a 4.36 trillion Shekel (about $22 billion) austerity budget for fiscal year 1984-85 to the Knesset today, predicated on a general lowering of living standards and increased unemployment until economic conditions improve. It was promptly attacked by the Labor opposition and some coalition factions are not altogether pleased.

Cohen-Orgad argued that his budget is based on confidence that Israel can overcome its economic crisis. But strong measures are necessary. Real wages will decline to the level of two years ago. The government however will offer a “flexible cost-of-living increment to avoid sharp fluctuations in real wages,” the Finance Minister said.

Unemployment will rise to 6.5 percent of the work force. Some 8,000 jobs will be eliminated from the public service sector. Private consumption is expected to be reduced by 1.5 percent and exports to rise by 8.5 percent.

20 PERCENT CUT IN DEFENSE EXPENDITURES

There will be a 20 percent cut in defense expenditures although the budget assumes that the Israel Defense Force will remain in Lebanon throughout the next fiscal year. The government will purchase less, pay smaller subsidies for basic commodities and services and will reduce social spending.

The budget assumes that prices will rise by 130 percent next year, although the Treasury says this is merely “a technical assumption” and prices may go higher. Another assumption is that the Shekel will be worth 192 to the U.S. Dollar. The present rate of exchange is about 100 Shekels to $1 but the rate varies day-by-day.

There is no estimate in the budget of the inflation rate for the 12 month period during which it will be operative. It will, however, be subject to quarterly adjustments based on revenue and inflation. This is a break with past practice when the budget was amended every time inflation surpassed the forecast rate.

That change was opposed by some of Cohen-Orgod’s colleagues on the Ministerial Economic Committee who warned that the Treasury would be occupied all year bargaining with the rest of the Cabinet over the budget. Labor and Welfare Minister Aharon Uzan is still not reconciled to proposed cuts in social expenditures. His Tami party has threatened several times to quit the Likud-led coalition if welfare payments are reduced.

On the touchy issue of settlement activity in the occupied territories, Cohen-Orgad said settlements in the West Bank, the Golan Heights and in Galilee as well would receive government assistance commensurate with their distance from the main population centers. He did not mention the establishment of new settlements but he did not suggest a settlement freeze.

LABOR MK DENOUNCES THE BUDGET

Labor MK Gad Yaacobi, chairman of the Knesset Economic Committee, denounced the budget and expressed hope that it is the last budget that will will ever be submitted by a Likud government. “What we are seeing in this budget is an acknowledgement that the economic bubble has burst. The illusions of the past three years have gone up in smoke and now there is a more sober mood, ” he said.

Yaacobi maintained that as a result of the economic crisis brought on by Likud, Israel’s economic dependence on the United States is greater than ever. “It is not even a question of how much aid we will be able to receive,” he said. “We are waiting to hear from Washington what our economic policy ought to be. This is a result of the trade gap and foreign debts which have swollen to unheard of proportions.”

There was some good news on the foreign debt situation, however. The Bank of Israel released figures yesterday showing that the debt rose by 7.5 percent in 1983, half the increase of 1982. It still stands at some $23 billion. The more moderate rise last year was credited to smaller overseas loans taken by the private sector in Israel. But most of the overall rise was blamed on the government.