Jerusalem, 28 November 1995
BACKGROUND ON 1996 BUDGET
(Communicated by GPO Economics Desk)
During December, the Knesset will begin debate on the 1996 budget which
must be passed by the end of the month.
One of the major questions currently being discussed in the Knesset, in
the government, and the economic press's assessment is whether Finance
Minister Avraham Shohat will be able to limit the budget's total spending
and its allocation framework, or whether a budget increase or a change in
its structure will be necessary. Factors affecting the decision include
pressures to increase both peace process/security spending and social
services spending.
As it stands now before the Knesset debate and the second and third
readings needed before becoming law budget spending will be NIS 172.7
billion, with an additional NIS 8.4 billion in spending conditional upon
revenues. Budget spending will increase, in real terms, by 8.6% compared
to the 1995 budget and general spending will increase by 3.1%, excluding
repayment of the principle on debts. The 1996 budget, excluding debt
repayment, will be NIS 145.6 billion.
The budget is divided into three major categories: regular, development
and investment, and debt repayment to the Bank of Israel. The regular
budget of NIS 123.5 billion covers Government institutions, defense
spending, the local authorities and social services' budgets. The
development and investment budget for 1996 will be NIS 47.5 billion, and
includes investments and development in social services and economic
sectors. Debt repayment to the Bank of Israel for repaying loans and
interest will be NIS 1.6 billion.
The Government's main goals in the 1996 budget are to achieve stable
growth, a decrease in unemployment, absorption of 70,000 new immigrants,
and stabilize the country's balance of payments deficit in order to enable
its reduction in later years. A number of sectorial problems will also be
dealt with in the budget. These include the long-term crises surrounding
the kibbutzim debts, the defense industries, and the health funds. Further
aims of the 1996 budget consist of spending: to implement "Rainbow 2,"
redeployment in the West Bank; on more housing and construction and on
improved social services for the weaker elements in the population; on
assistance for investments and research and development; and on aid to
minority populations.
The six ways in which the Government will work towards achieving its goals
will be by: making large investments in economic infrastructure and
education; reducing taxes; creating structural changes in certain sectors
to increase competition; privatizing Government-owned enterprises;
reducing the budget deficit; and reducing the budget's component in the
Gross Domestic Product.
The 1996 budget will be divided in the following ways: defense spending
16.4%, debt repayment 32.2%, transfer payments and supports 28.4%,
civilian spending 16.4%, and investment and credit 6.6%. Ten years ago,
in 1986, the breakdown was: defense spending 24%, debt repayment
40%, transfer payments and supports 21%, civilian spending 10.2%,
and investment and credit 4.8%.
Revenues into the Government budget are expected to be broken down as
follows: direct taxes 45.6%, indirect taxes 37.9%, grants from
abroad 8.1%, and other revenues 8.4%. The budget deficit in 1996 is
planned to be 2.5% or NIS 10.8 billion, compared to the planned 2.75% in
1995, according to Finance Ministry expectations. The NIS 10.8 billion
deficit is scheduled to be financed by the sale of Government-owned
companies, at NIS 3 billion; loans from abroad, NIS 2.2 billion (this
includes loans based on U.S. Government loan guarantees); and loans from
the Israeli and foreign public, NIS 5.6 billion.
The peace process, according to the Finance Ministry, is budgeted a total
of NIS 2.8 billion spread out over 1994-98. The ministries primarily
receiving this section of the budget include Defense, Public Security,
Agriculture, and Foreign Affairs.
Spending on social services will equal NIS 67.4 billion in 1996. This is
broken down as follows: national insurance 33.8%, education and Culture
25%, support to health funds 17.6%, higher education 5.3%, Health
Ministry 4.7%, labor and welfare 3.7%, absorption 2%, and others
7%.