ISRAEL: A Sea of Red Ink

“The Finance Minister does not wear a glorious crown,” says Yehoshua Rabinowitz. “He is not the country’s most popular fellow. If I have to step on a few toes, so be it.”

Finance Minister Rabinowitz is stepping on lots of toes these days—notably with his proposed budget for 1976, which was approved last week by the Israeli Cabinet after an agonizing eight-hour session. It was the biggest budget in the nation’s history—about $12 billion, against $9 billion for fiscal 1975—and it means more hardship for Israeli taxpayers. The budget will barely cover the cost of inflation, currently running at a 25% rate. Moreover, repayments on past debts will consume $2.5 billion v. only $1.4 billion in 1975, and increased military purchases will cost more than $4.6 billion. In fact, the country these days is so strapped for cash that its finances are on the verge of accomplishing what its enemies have only threatened—driving Israel into the sea, this one a sea of red ink.

Double Shifts. Among other things, the new budget will nearly double tuition for university students by reducing government subsidies and establish double shifts for teachers. The price of milk and bread may rise 60%. About 2,000 civil servants will be laid off, and the wages of the rest will be frozen. One possible benefit: workers forced out of Israel’s top-heavy bureaucracy and service industries (such as clerical, teaching and airline jobs) may be forced to look for work in industry, where their talents are badly needed.

About 40% of the budget has been allotted to the Defense Ministry. As generous as that sounds, the $4.6 billion it represents means a 5% drop in purchasing power from last year’s total. Military leaders complain that they are already being squeezed too hard. They point out that reservists are being called up for shorter periods, soldiers are getting less training and food is now being packaged in smaller quantities to reduce waste. “Things are getting so tight around here,” says a senior Defense Ministry official, “that we’re counting paper clips.”

Defense Minister Shimon Peres, who maintains that the Arabs plan to spend $14 billion of their petrodollars on arms, wanted at least $560 million more than Rabinowitz was prepared to give him. Chief of Staff Mordecai Gur said serious cuts in defense spending might impair Israel’s “chance to win a clear victory in a new war within a reasonable time.” But some Israeli doves, who have been relatively silent since the October War, surfaced to protest that line of reasoning. Argued Jacob Arnon, a former Finance Ministry director: “There comes a point when defense spending becomes so enormous that it presents just as much danger to our survival as do our Arab enemies.”

If anything, Israel’s financial position has been more precarious than its military situation. Not once in its 28-year history has the country enjoyed a favorable balance of trade. The hydra burden of mass immigration, state-building, defense spending and a womb-to-tomb program of social welfare have made Israel’s 3.4 million citizens some of the most heavily taxed people in the world. Next year, a staggering 70% of the state’s budget will be provided by taxes and forced loans, compared with 43% in the U.S. Thanks in part to a rise in commodity prices that has driven the cost of living up 70% since 1973, they also bear the world’s highest per capita debt ($2,206).

Black Market. By the end of the current fiscal year, Israel’s expenditures will exceed its income by about $1 billion. The $2.3 billion in aid and long-term loans promised by the U.S. as part of the second Sinai accord will cover only part of the deficit.* Foreign reserves are so slim that there is only a six-week cushion instead of the three-month “redline” that economists consider necessary. On the occupied West Bank, Arab merchants are only warily accepting Israeli pounds, but not for political reasons. The pound, which was worth $4 when the nation was founded in 1948, by last week had been successively devalued to a paltry 14¢ at the official rate; in black markets it could be had for 9¢.

* Last week Washington Columnists Rowland Evans and Robert Novak reported that, according to a CIA study, the $2.3 billion in aid would actually give the Israeli government a $500 million surplus. Scoffed Finance Ministry Director Arnon Gamy: “If those columnists can turn our expected deficit into a surplus, they are welcome to come here and advise us how to do it.”