Lapid was reportedly considering raising Israel’s deficit target in order to
avoid further budget cuts, a move that would put him at odds with Bank of Israel
Gov. Stanley Fischer’s recommendations.
Earlier in the month, Fischer
warned that failure to curb the deficit would explode the state’s debt, pushing
it as high as 95 percent of GDP by the end of the decade instead of easing it
down from its 2012 level of 73% to a sustainable 60%. Israel, Fischer noted,
pays a high-risk premium on its debt, meaning that failure to reduce the debt
will be very costly in the long run.
“The main problem in the Israeli
economy is the budget,” Fischer said at the time.
Even after the
government finds some NIS 13 billion in legally mandated cuts, Fischer predicted
that the 2013 deficit would overshoot its 3% target by 0.6%.
Reznick, research director of Leumi Capital Markets, predicted Sunday that the
annual deficit could end up as high as 4.5%.
“The central explanation for
the growth of the deficit is the decrease in tax revenues, which is a result of
slowed economic growth,” he said.
A spokeswoman for Lapid refused to
comment on the reports, saying she was not at liberty to discuss details of the
budget until after Lapid and Prime Minister Binyamin Netanyahu agreed upon a
Lapid is expected to meet with Fischer before following up on
his first budget meeting with Netanyahu later in the week.
deficit limit would ease some of the political pressure Lapid faces in cutting
the budget for 2013 and 2014.
Rumored cuts of up to NIS 4.5b. from
defense and NIS 4b. from child allowances are never politically palatable, notes
Ori Greenfeld, senior macroeconomist at Psasgot Investments. Meetings last week
with Histadrut labor federation chairman Ofer Eini over NIS 4b. in potential
cuts from public sector wages were inconclusive.
On the tax side,
Federation of Israeli Chambers of Commerce president Uriel Lynn on Sunday warned
against raising corporate tax rates. Lapid himself, trying to stay consistent
with his campaign promises of protecting the middle class, ruled out reducing a
tax benefit for women worth NIS 700m.
Thus far, the only other concrete
portion of his budget strategy Lapid has made public is an increase in luxury
Last summer, Netanyahu and then-finance minister Yuval
Steinitz doubled the deficit target from 1.5% to 3% (but included plans to
gradually bring it back in line) when it became apparent that projected revenues
were not materializing. The deficit for that year settled at 4.2% of
In related news, the Knesset on Sunday approved Yael Andorn as the
Finance Ministry director-general, making her the first woman to fill the
“Yael is the right person at the right place, and she has an
impressive record both at the Treasury and in the private market,” Lapid said.
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