Bank of Israel Head Urges Il 6 Billion Budget Cut

Bank of Israel Governor Arnon Gafni called yesterday for a cut of at least IL 6 billion in the IL 189 billion budget already approved by the Knesset. Presenting the annual report of the bank, Gafni warned that unless the cuts are introduced, inflation will grow even more than the 40 percent expected this year and the recent increase in Israel’s exports will again shrink.

He told a press conference that “for five years the government has spoken of the need to cut public expenses. But instead, government expenses increase, and public services expand. It is time we stop talking about cuts, and start doing something about it.” The Bank of Israel Governor serves as economic advisor to the government and has always been the most authoritative economic critic of the government. Like his predecessors, Finance Minister Simcha Ehrlich tended today to play down the Governor’s warnings.

Ehrlich said he would propose that the government cut IL 4 billion in the State budget, IL 2 billion less than suggested by Gafni. Ehrlich agreed with Gafni that the government should do a better job of collecting takes, but said there was no intention to raise the income tax. The income tax was reduced considerably three years ago when the government announced a comprehensive tax reform. Many of the innovations introduced by the reform have been long forgotten, but the highest income tax rate is still 60 percent, compared to close to 90 percent under the previous system.

According to the estimates of the Bank of Israel economists, the real budget now stands at close to IL 200 billion, IL II billion more than the original budget. This is partly due to the growing devaluation of the Pound. The dollar was traded yesterday at a record high–17.62 Pounds per dollar.