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Government spending may spike because of the eruption of hostilities with Hizbullah in Lebanon. But the answer is not new taxes, vowed the treasury's budget director Kobi Haber.

Special levies, such as were imposed during the first Lebanon war in 1982, will not be imposed, Haber told TheMarker.

"Assuming there is no drastic deterioration in the war, there will be no new taxes," he said.

Haber dismissed Bank of Israel Governor Stanley Fischer's suggestion last week that if the fighting intensifies, tax hikes might be in order.

"We receive a huge dividend from our budgetary credibility; the stability of the stock market and the shekel, and the preservation of Israel's international credit rating. Our credibility has turned out to be very significant, and we mustn't lose it. We mustn't play with the budget, and we mustn't break the budget framework," he said.

Haber, who is considered the strongman of the treasury, is currently busy preparing the 2007 budget proposal, at a time when uncertainty concerning the components of the budget and the preservation of its framework is greater than ever.

The defense establishment has already received large increases from the 2006 budget, and it is demanding a further NIS 4 billion from the 2007 budget.

Growth and revenue forecast for the economy are also uncertain. "We intend to recheck our growth and revenue forecasts so they will not miss the mark like they did in the recession of 2002-2003," Haber said.

Credibility is paramount in his eyes: the treasury won't be trying to pull the wool over anybody's eyes. "We won't propose easy but improper solutions. We could use the war as an excuse for breaking the budget framework, but the credit ratings companies would say, rightly, 'We understand that there is a war and you need money, but how do you explain that at the same time you are going about your business as usual, paying billions of shekels for coalition agreements.'

"We have coalition agreements, such as the raising of the minimum wage, and stopping the reduction of child benefits, which together cost NIS 3.5 billion. We also have a decision on the development of the Negev and the Galilee, and this will also raise questions concerning the change of our priorities. This is the kind of question the solving of which creates our credibility in the world."

Referring to the increasing demands for the financial compensation of large sections of the economy, including those who have incurred damages due to the war even though they are not situated in the north, such as the tourist sector or the Channel 2 franchisees, Haber said, "We need to give compensation wisely, but mostly we shouldn't decide while the Katyushas are falling.

"I know there are some who want to profit at my expense, and there are some who really need help. It's all a question of the right dosage. The dosage needs to be determined when the battles are over; we shouldn't make hasty decisions."

Haber also referred to proposals to set up an administration for the rehabilitation of the Galilee, including infrastructure and the education system, in the spirit of the Marshall Plan for the rehabilitation of Western Europe after World War II.

"I hear all these would-be Marshalls," he said. "and also all those marching to the tune. At this stage I prefer to make decisions in peace."

Haber is also concerned that from all of the good intentions for the Galilee "we will create a monster we won't know how to deal with later."