Lapid looking wary 370.
(photo credit: Mark Neiman/GPO)
The Bank of Israel warned on Tuesday that Finance Minister Yair Lapid’s decision
to cancel planned income tax increases would present “tough challenges” in
sticking to ever-tightening deficit targets in 2015 and beyond.
budgetary steps which were decided upon toughen the challenge of meeting the
deficit target of 2.5 percent of GDP which was set for 2015,” the bank said in a
“Meeting this target will require extensive policy measures,
since the cost of the programs which the government decided on is already
greater than the expenditure limit which will allow meeting the
Lapid on Monday changed course on unpopular planned income tax
increases for 2014, but said he would cut spending by NIS 3 billion in 2014 to
ensure he doesn’t breach that year’s 3% deficit target.
He said he was in
talks with Bank of Israel Gov. Karnit Flug and the prime minister’s top economic
adviser, Eugene Kandel, to lower the expenditure ceiling, which limits how much
government spending can rise from one year to the next (irrespective of the
deficit). The BoI said the decision to adjust the ceiling was
Where’s the money? Lapid said it will come from several
sources. Because the 2013 deficit is expected to come out 1.1 percentage points
lower than the target of 4.6%, the Finance Ministry will have less interest to
pay, meaning less spending off the bat. The rest, he said, would come from
reducing the budgetary reserves set aside for emergency spending – a popular
source of funds that has been tapped for increases in defense spending – and the
ever-popular catchall of “increasing government efficiency.”
Finance Committee on Tuesday expressed outrage at Lapid’s decision, calling it
“inconsistent,” as committee chairman MK Nissan Slomiansky (Bayit Yehudi) said
it would not approve any changes without a full explanation from the
“I’ll see to it that MKs will receive answers and, if
necessary, put off discussion on certain requests until we receive answers on
the matter,” he said at a session approving other changes to the
UTJ MK Ya’acov Litzman went further, accusing Lapid of changing
policy positions based on populist sentiment and PR calculations.
the laughingstock of the Knesset and we must not cooperate with him,” he
Meretz chairwoman Zehava Gal-On said the process of raising taxes
only to lower them to popular adulation was “not a mistake, it is a
“Half-a-year ago, when it seemed like there was an extreme
deficit, Lapid and Netanyahu passionately advanced a difficult and destructive
program of cuts,” she said. “But today, when they discovered huge reserves, out
of nowhere, they suddenly run to give tax exemptions to the rich.”
money would have been better spent on education and other measures to reduce
inequality, she added.
The committee linked Lapid’s change of heart on
income taxes to his inconsistency on fighting tax evasion.
committee approved his proposal to require even small businesses making just NIS
1.5 million a year to report their taxes online, it accused Lapid of
backtracking on the limit after the fact.
Ofer Klein, head of the
economic research division of Harel Insurance and Finance, predicted that while
Lapid’s decision on income taxes reduced the likelihood of hitting future
deficit targets, it would at least spurn economic growth through private
consumption. That might help the finance minister in the process of trying to
raise the growth rate to around 5% from its 2013 projected level of
In a study released Wednesday, the Taub Center for Social Policy
said Israel’s constant zigzagging on fiscal issues could be resolved by creating
more professional bodies to handle the budgeting process.
budget process is conspicuously lacking in planning and fails to set long-term
goals,” wrote Eran Yashiv, the study’s author.
“This makes it difficult
for the Israeli government to meet its own set deficit targets, which are then
Creating an institution like the United States’
Congressional Budget Office would help, given that Israel lacks a planning
entity “capable of providing data, estimates, or forecasts of this nature or of
the required scope,” such as reliable tax revenue forecasts and long-term
Such a body could lay out core budgetary guidelines for
a decade, including a margin of maneuverability to let policymakers respond to
the changing business cycle.