Israel Cabinet Approves Another $550 Million Budget Slash, but Not What Specific Items to Cut

The Cabinet agreed today to slash an additional $550 million from the State budget, at the urging of Finance Minister Yitzhak Modai. But the sensitive matter of where the half-billion dollar plus cuts would come from was left in abeyance.

Those details are to be worked out by a special four-man ministerial committee which is expected to come up with a plan in about 10 days. It was clear nevertheless that there must be a major cut in the defense budget. Defense Minister Yitzhak Rabin will brief the Cabinet at its next regular weekly session next Sunday on how further reductions in defense spending would affect Israel’s security.

The Cabinet also discussed another politically sensitive matter — the inevitability of large scale unemployment resulting from the contraction of government expenditures. The Minister of Labor and Welfare, Moshe Katzav, predicted a 50 percent increase in unemployment in the first six months of 1985 and stressed the urgency of retraining unemployed workers for new jobs. He warned that if unemployment is higher than expected, the economy could not cope with it.

HISTADRUT SEEKS WAY TO PREVENT UNEMPLOYMENT

Meanwhile, Histadrut, fearing massive dismissals in the public service sector, called today for an urgent meeting of the joint Histadrut-government sociol and economic council to discuss ways to prevent the jobless rolls from rising.

Avraham Sharir, the Minister of Tourism, maintained that cost cutting alone would not solve the economic crisis. He stressed the need to improve Israel’s balance of payments equation by renewing economic growth and exports. Tourism is an export of sorts in that it provides services which bring in foreign currency.

An optimistic note on the battle against inflation was sounded by Deputy Finance Minister Adi Amorai who reported today a substantial drop in sales by the large shopping and supermarket chains. As a result, they reduced their prices, he said. Prices are in any event subject to the freeze package instituted November 2. According to Amorai, if the government implements its budget cuts, the economy will cool off and there will be no “inflationary explosion” after the freeze expires in three months.

PERES HOPEFUL ON PRICE INDEX

Premier Shimon Peres is also hopeful that the next consumer price index will show a “considerable drop.” He said in an interview published Friday in Yediot Achronot that the 24.3 percent rise in the October price index–less than expected — was a good sign. He also insisted that the government has no intention of using unemployment as a tool to fight inflation.

Peres was optimistic that Israel would weather its economic crisis. He said the economy is undergoing a transformation and will emerge stronger and healthier within not too long a time. “We must switch over to productive industry,” he said. “The present situation is unbearable — a small productive layer carries on its narrow shoulders the public services.”