As the Finance Ministry goes into high gear on framing next year's state budget it must consider how to push through spending cuts of NIS 12 billion to NIS 14 billion, to account for increased spending and an anticipated decline in tax revenues.

Treasury officials do not have much time to plan the budget cuts: On Monday Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz announced that the cabinet would consider the outlines of the defense budget next week.

The framework for the entire state budget will be debated by the cabinet on September 2, with a vote scheduled for September 13.

Treasury sources say it is the cabinet's responsibility to decide on substantial changes in priorities, adding that major reductions to the defense budget are considered unlikely and spending in this area could actually increase.

The transportation budget is another with little wiggle room, since much of it is earmarked as payments to outside suppliers.

Ministry sources say that after adjustments for inflation next year's budget will exceed this year's by more than NIS 13 billion. Treasury figures said on Tuesday that priority would be given to boosting economic growth and reducing social disparities, in part by putting resources into education and vocational skills as well as public transportation and other infrastructure projects.

One measure being considered by the Prime Minister's Office is a public campaign to recover overdue taxes, in cooperation with the Israel Tax Authority and local governments. The public owes billions of shekels in taxes, sources say, including NIS 30 million to the Israel Tax Authority alone.

The idea, they said, was a limited-time amnesty that would slash fines and interest payments for tax scofflaws who pay up, potentially adding billions to state coffers and obviating some of the need for tax hikes or spending cuts next year.

The proposal, the brainchild of senior PMO officials, will be presented to Netanyahu before the budget is submitted to the cabinet.

Among other ideas the Finance Ministry is considering is to equalize all child-allowance payments at the lowest level for an estimated annual savings of NIS 2 billion to 2.5 billion.

The allowances increase for the second, third and fourth children in a family, in some cases by as much as NIS 280 per month.

Treasury officials are also considering freezing wages, deferring payment of certain benefits and imposing a hiring moratorium in the civil service.

Also being considered is the elimination of the tax exemption on employer contributions to employee retirement and professional training ("keren hishtalmut" ) accounts, which would save about NIS 4.5 billion.

The Histadrut labor federation has objected to such measures in the past. A tax amnesty could also be expected to generate criticism from those who see it as rewarding scofflaws, but similar campaigns have been mounted successfully in the past.

In an interview with TheMarker TV and the Knesset television channel on Tuesday, Finance Ministry Director General Doron Cohen shied away from disclosing details but confirmed that in real terms next year's budget would be more than NIS 13 billion higher than this year's.

"It should be remembered that over the past two years commitments were made, agreements signed [for example with the teachers and the doctors] and plans developed that create commitments at higher levels than we are permitted [by law]. This is a normal part of the budget-making process and therefore we must adjust the ceiling on expenditures ... This requires setting priorities," Cohen said.

In referring to the government's commitment to limiting next year's budget deficit to 3% of GDP Cohen said that Israel has fared better in the global financial crisis that began in 2008 and said that current events in Europe, in particular, reflect the importance of financial rectitude.