Prime Minister Ariel Sharon and Finance Minister Silvan Shalom met yesterday with business leaders and academic experts to hear their views on the state of the economy, ahead of the debate on next year's budget. Today and tomorrow Sharon will meet treasury heads who will present their opinions and forecasts about the budget, the size of the deficit, growth, tax revenues and expected inflation for next year. Next Sunday, the cabinet will sit to discuss the budget, and one week later all the major budget variables will be fixed.

The process of approving the government budget is long and complex, and is only completely wrapped up on the last day of the year. The process gets harder and harder every year due to the prime minister's inability to control MKs, each one of whom is forever looking towards the coming elections. Even the parties in the ruling coalition blackmail the government on budget eve, with Shas being particularly adept at this.

The year 2002 will be a particularly difficult year for the state budget, both in terms of income and expenditure.

We are ensconced in a deep economic slowdown that will push tax revenues lower, at the same time as the army and police forces are claiming more cash for fighting in the territories. Not only that, but wages in the public sector have risen, there are more people claiming income support grants, child benefits have risen (by around NIS 500 million) while the three Negev Laws (totaling NIS 650 million) will bring no growth, just distortions. In addition, Shalom wants to invest a further NIS 1 billion in infrastructure. So how are they going to cope with the falling revenues and growing expenditure?

Growth: The treasury dons its rose-tinted glasses and predicts growth in the economy of 3.5 percent in 2002, while the economy grew a poor 1 percent this year - with difficulty. The only effect of this is to up tax revenue forecasts by NIS 2 billion.

Increased tax collections: According to the projections presented to the prime minister, the income tax and VAT authorities will collect an additional NIS 1 billion next year. There is no magic in achieving this, and nearly every year there are increased collections, but apparently Yonni Kaplan, Income Tax commissioner has outdone himself, because despite the slowdown, tax revenues this year were higher than any year in the past, but it would be difficult to repeat the miracle two years running.

Deficit: According to the Deficit Reduction Law, the budget deficit is meant to be 1.5 percent of GDP next year, but the treasury is already talking about 2 percent. The planned jump of 0.5 percent of GDP will be taken up by increased state spending by another NIS 2 billion.

Automatic pilot: An unexplained growth of NIS 5 billion in income for the government for next year; each year this sum appears, without exertion by government officials. But even this wouldn't be enough, as expenditure, with equal mystery, is forecast to rise even higher - to around NIS 8 billion. So we have to cut NIS 3 billion somewhere. Government ministers who have already ordered new suits and are planning new projects should hold on to their wallets for a few more years.