The Cabinet today approved a budget ceiling of IL 405 billion for the fiscal year 1980-81, beginning April 1. It is based on a predicted inflation rate of six percent per month for the first six months of the fiscal year and a four percent rate thereafter.
But economic experts contended today that the new budget is already obsolete since it is based on the value of the Pound as of October, 1979. The Pound has since eroded by another 30 percent and in those terms the true budget amounts to IL 653 billion. The economists also maintained that the Treasury was deliberately underestimating the rate of inflation for the next fiscal year.
Approval of the budget is regarded as only a temporary victory for Finance Minister Yigal Hurwitz An understanding was readied among the various ministers last week to extract additional funds for housing, welfare and settlements from the budget reserves. This would leave the Treasury with virtually no reserves and Hurwitz may have no choice but to abandon his IL 405 billion ceiling. Hurwitz himself said today that the budget will be updated by mid-year according “to the developments in the economy.”
According to the Treasury’s forecast of a limited rise in the inflation rate, the exchange rate of the Pound to the dollar will be IL 50-51 by next September. The prices of basic commodities such as oil fuel, bread and public transportation will be some 50-60 percent higher than at present.
Economic observers noted that the Treasury made a point of predicting a modest rise in inflation because a higher forecast would have created a public reaction that would make such a forecast a self-fulfilling prophecy.
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