Cabinet Reviews Il 306 Billion Budget for Fiscal 1979-80

The Cabinet met today for its first review of the IL 306 billion budget for fiscal 1979-80 submitted by the Treasury. Following briefings by Finance Minister Simcha Ehrlich, Bank of Israel Governor Arnon Gafni and Budget Director Eitan Berglass, the ministers decided that no details would be made public of their further discussions until the budget has been approved.

The proposed budget takes into account an anticipated annual inflation rate of 37-40 percent. Although nearly IL 100 billion larger than the present budget, it is about the same in terms of purchasing power, an indication of the continuing inflationary spiral.

Despite the veil of secrecy intended to avoid public controversy, it was learned tonight that the largest single portion of the proposed budget, about IL 90 billion, will be used to service the national debt. The second largest item is the defense budget of IL 87 billion proposed by the Treasury. The Defense Ministry is said to be pressing for an addition al IL 4-8 billion to cover the costs of withdrawal from Sinai and the redeployment of Israeli forces in the Negev.

It was reported yesterday that demands made by the various ministries exceed the draft budget by some IL 10 billion which could result in an unprecedented inflation rate of 60-70 percent. However, the ministers emerging from today’s Cabinet session were restrained in their reactions. Almost all of them said they agreed in principle with the need to reduce government expenditures although each apparently felt the Treasury expected his ministry to cut too much.

Premier Menachem Begin apparently warned the ministers not to carry their controversies with the Treasury to the public media. Defense Minister Ezer Weizman, for his part, has been saying that there is no conflict between himself and Ehrlich. It was reported today that the Defense Ministry plans to freeze all construction works in the north and central parts of the country and will concentrate on the withdrawal from Sinai and redeployment. The proposed budget provides for the continued production of Israel’s jet fighter, the Kfir and the Merkava tank.

ECONOMIC PROGRAM UNDER ATTACK

Although the government decisively defeated a no-confidence motion on economic matters last week–the Knesset vote was 55-43–its economic program is under attack in both coalition and opposition quarters. At a meeting of the Histadrut Executive in Tel Aviv, the senior Likud delegate, Yossef Tamari, demanded Ehrlich’s resignation. He received prolonged applause.

Histadrut Secretary General Yeruham Meshel, a Labor MK, denounced the government for failing to take sufficient measures to check inflation. He also charged that the government was allowing persons with independent sources of income to evade taxes while the tax burden falls increasingly on the wage-earner whose tax is deducted from his pay check. According to Meshel, tax evasions amounted to IL 10-14 billion last year.

The Histadrut Executive was most concerned with the sharp price increases in recent weeks resulting from the slash of government subsidies for basic commodities. The elimination or reduction of price supports has been one of the keystones of the government’s anti-inflation program.

But its immediate effects are felt by the average consumer. Last week the prices of bread, margarine and cooking oil went up by an average of 10 percent and similar increases are expected in the price of other basics. This will cause an 0.14 percent rise in the cost of living index but the Treasury is expected to save IL 50 million.