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Senior Finance Ministry officials are at odds over how big a cut must be made in the 2003 budget, with the estimates ranging from NIS 8 billion to NIS 13 billion.

At a meeting with Finance Minister Silvan Shalom earlier this week, all three of the treasury's top officials - Director General Ohad Marani, Budget Director Uri Yogev and Accountant General Nir Gilad - produced a different set of economic forecasts and a different proposed solution to the economic crisis.

Yogev was the most optimistic of the three. He predicted that the shortfall in income and value-added tax revenues would amount to only NIS 5.3 billion this year, while National Insurance Institute payments and other revenues would be NIS 2 billion short and taxes and license fees about NIS 500 million short.

This produces a total shortfall of NIS 8 billion, necessitating a budget cut of the same size, he said.

Marani was considerably more pessimistic: He said that in light of the unexpectedly sharp drop in January's tax revenues - which caused the budget deficit to swell to NIS 2.7 billion that month - and the apparent continuation of this trend in February, the total shortfall in income and value-added tax revenues this year would reach NIS 9-10 billion.

Combined with the expected shortfall in NII payments, taxes and fees, this creates a total shortfall of NIS 13 billion, necessitating a corresponding budget cut, he said.

But Gilad offered perhaps the most pessimistic forecast of all: It is impossible to make any prediction of the expected shortfall, he said, because the economy is in a tailspin whose ultimate depths no one can foresee. Thus unless something is done to stop the deterioration, every estimate is likely to prove an underestimate, he warned.

Gilad's proposal for stopping the deterioration included budget cuts, but also several other elements, including a major reform of public-sector wages and an interest rate cut by the Bank of Israel.

Only an interest rate cut can get the economy moving again, he said, whereas the current high rates will guarantee continued deterioration.

Shalom asked all three tough questions about the effects of their proposals on employment, inflation, growth and tax revenues, pointing out that some of these ideas have already been tried, and failed.

For instance, he noted, a 4-percent cut in NII pensions for retirees with other sources of income wound up saving much less money than the treasury had predicted.

Marani launched his own veiled attack on Yogev's proposals, saying that for once, the treasury must provide real numbers. If, for instance, a certain proposal will save NIS 70 million, the treasury must not announce that it will save NIS 300 million, he said.

Otherwise, the cuts will prove insufficient, and the government will wind up having to submit several additional budget revisions during the course of the year, as it did in 2002.

One matter not discussed at all was the defense budget.

The Defense Ministry plans to demand an increase of NIS 5-6 billion in this year's budget. Should Prime Minister Ariel Sharon agree to any part of this, the budget cuts in other ministries would have to be much steeper. Sharon has promised Defense Minister Shaul Mofaz the defense budget would not be harmed.