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Israel huge deficit

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Apr. 30, 2003
US wants to see our budget balanced, Netanyahu tells Knesset (UPDATE)

Finance Minister Binyamin Netanyahu presented his emergency spending cut plan to the Knesset on Wednesday, and warned in a speech that urgent action must be taken to rescue Israel's economy.

He said that a huge budget deficit threatens the welfare of all Israelis, particularly the elderly, children and the weaker sectors.

"We all agree that this is the problem, and we must do something to rescue the economy. We are working to lift some heavy weight off our backs," Netanyahu said.

His plan calls for a NIS 11.4 billion ($2.3b) cut in the state budget, which union leaders are protesting because of the thousands of layoffs, salary and pension cuts that this would entail.

Countering accusations that his program will hurt the weaker sectors of society, Netanyahu said he knows of nothing worse for the economically disadvantaged than high interest rates, as individuals suffer from chronic overdrafts while businesses cannot afford to borrow.

Netanyahu cited lowering interest rates as the first step in promoting economic growth.

"Israel may just have the highest interest rate in the world," he said. "It is practically impossible to nurture business, practically impossible to get credit, practically impossible for the business sector, for productive companies, to compete with the government."

Netanyahu also called for increased competition in the marketplace. "Today, due to the break-up of Bezeq's monopoly in the [international calling] market, Israeli citizens enjoy rates that are among the lowest. Breaking monopolies is the greatest social justice. We must and can produce competition," he said.

The finance minister also insisted that taxes must be lowered in order to bring the economy out of depression. In his speech he explained the theory of supply-side economics, suggesting that too much taxation actually reduces the government's revenue by shrinking the tax pool.

Netanyahu also referred in his speech to $9 billion loan guarantees from the United States, stressing that the US was interested in seeing Israel's budget balanced by cutting spending rather than by increasing taxes. "The Americans are pleased with the plan," he said.

Despite fierce opposition to the finance minister's emergency budget from various sectors including the Histadrut Netanyahu was heckled relatively mildly during his speech, as he was speaking much of the time to a practically empty Knesset.

Read the Special Report: A Country on Strike, for more details about the general strike that began in Israel on April 30.

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