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Cabinet Trying to Reach Accord on Next Fiscal Year’s Budget

The Cabinet convened Monday evening in an all-out attempt to reach agreement on a budget for the next fiscal year. The session, expected to last well into the night, was preceded by a meeting of the four-member Ministerial Economic Committee consisting of Premier Yitzhak Shamir, Vice Premier and Foreign Minister Shimon Peres, Finance Minister Moshe Nissim and Economic Coordination Minister Gad Yaacobi.

The Ministers and their aides reportedly grappled with the Defense Ministry’s adamant opposition to any further cuts in the defense budget, an issue which will now be addressed by the full Cabinet.

Nissim was said to have backed off from his original 180 million Shekel cut in defense expenditures but insists on a minimum reduction of 80 million Shekels. Defense Minister Yitzhak Rabin remains firmly opposed. Shamir and Peres are also opposed to significant defense cuts but Shamir conceded last week that some cuts were unavoidable. Another battle shaping up is over the education budget. Education Minister Yitzhak Navon said the proposed cuts were too drastic and he would vote against them. Navon has the backing of elementary school teachers who have threatened a strike if the cuts are made.

Peres held last-minute talks with trade union leaders and industrialists before the Cabinet convened. He was hoping to put together a package of wage and price restraints to enable the Treasury to proceed with its planned tax reforms and restructuring of the capital market.

Treasury sources said Monday that they still hoped to cut the top income tax brackets from the present 60 percent to under 50 percent. But the Treasury has apparently waived its ambitious plans to eliminate the myriad of exemptions and loopholes in the tax code, in face of strenuous opposition from Histadrut.

The labor federation seems neutral toward urgings by the Manufacturers Association for a devaluation of the Shekel which would stimulate exports. The Cabinet was expected to decide that issue Monday night in face of growing public concern. Rumors of devaluation triggered a buying spree in the Tel Aviv Stock Exchange Monday.

The main argument for devaluation is the growing gap in Israel’s trade balance and a desire to maintain economic stability and Israel’s greatly improved foreign currency reserves which amount currently to about $4 billion.

Histadrut Secretary General Yisrael Kessar said Monday that the decision on devaluation was the government’s alone. He said Histadrut would not object as long as wage-earners are compensated for the loss in buying power by cost-of-living increments. Some Treasury officials had hoped to perusade Kessar to forego part of the COL compensation.

Nissim promised Sunday that the government would take no steps “which could shake the stability of the economy.” If the Shekel is devalued it is not expected to exceed 10 percent.

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