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Tuesday, 1 January, 2002, 15:11 GMT
Israel misses budget deadline
An Israeli tank on duty in the occupied territories
Conflict in the occupied territories is hurting Israel's economy
For the second year in succession, Israel finds itself without a budget on 1 January.

The government of Likud Prime Minister Ariel Sharon gave up on presenting it to the Knesset, the Israeli parliament, because there seemed no prospect of the fractious parties in Likud's huge coalition reaching agreement.

Israeli Prime Minister Ariel Sharon
Sharon: Relying on ultra-Orthodox parties to pass budget?
For the moment, Israeli law dictates that last year's budget be applied in allocating public funds until 31 March. If, by then, the budget is still stuck in the Knesset, fresh elections have to be called.

The budget process is always a difficult one in Israel, partly because a plethora of tiny special-interest parties often hold the balance of power.

That, historically, has resulted in budgets packed with special allocations for regions, ethnic groupings and other constituencies on which various members of the Knesset (MKs) depend.

Downturn complications

This year, though, the process has been rendered especially difficult.

The Israeli economy has been hit hard both by the ongoing Palestinian uprising against the Israeli occupation of Gaza and the West Bank, and by the global slowdown.

In 2001, the economy contracted 0.5% after growing 6.4% in 2000 - a 2.9% slide in per capita GDP when population growth is taken into account. The fall was the first since 1953.

Next year, growth is unlikely to exceed 1-2% at best.

In late December, the finance minister, Silvan Shalom, admitted that targets for growth in 2002 were wildly optimistic, forcing a 6.15bn shekel ($1.4bn; 1bn) cut in his 254bn shekel budget plans.

But deciding how to trim his draft spending plans is proving a challenge.

The ultra-Orthodox Shas and United Torah Judaism (UTJ) parties are refusing to surrender the sizeable tax breaks they have won for large families, over-16s living at home, and students in religious schools - which disproportionately favour their constituents.

And the Labor Party says help for the unemployed is sacrosanct, as is the Negev Law which gives assistance to residents in the southern Negev desert regions.


According to the Israeli media, Mr Shalom is working hard to get Shas and UTJ back onside in order to avoid the prospect of a poll.

With their votes, Likud should be able - in theory - to secure a slim win, with perhaps 63 votes from the 120-seat Knesset.

What that could do to the national unity government which incorporates Labor, however, remains to be seen.

See also:

18 Dec 01 | Business
Israel slashes budget deficit
13 Nov 01 | Business
Israel telecoms sale launched
28 Aug 01 | Business
Israel loses high tech jobs
26 Jan 01 | Business
Israel's economic tightrope
12 Oct 00 | Business
Conflict hits Israeli shares
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