Knesset Finance Committee chairman Nissan Slomiansky warned on Thursday that the committee would not automatically approve budgetary decisions made by Finance Minister Yair Lapid and Prime Minister Binyamin Netanyahu.
“It cannot be that high-minded struggles and score settling will form the basis of preparing the upcoming budget. It is appropriate for there to be deep and creative thinking among decision-makers while looking at the long-term,” he said.
Labor MK Stav Shafir has accused Slomianksy of making back-room deals with Lapid, securing budget transfers for settlements in exchange for supporting Lapid’s signature “0 VAT ” policy. Slomianksy, from the Bayit Yehudi Party, has denied making such deals, but his Thursday comments could be a sign that he intends to get concessions for his political base during budget negotiations as well.
Lapid and Bank of Israel Governor Karnit Flug, the top economic adviser to the government, have publicly drawn their battle lines regarding the budget in recent days, though Netanyahu is reportedly still deciding which approach to support before a framework is sent to the cabinet for approval on September 11.
For Lapid’s part, he said that he plans to raise the deficit target for 2015 to 3% of GDP from 2.5%, and has vowed not to raise taxes. In fact, he canceled a planned income-tax increase meant to go into effect in 2014. He also insists on moving forward with his much-maligned “0 VAT ” housing policy, which will cost NIS 2b.-3b. a year.
On Thursday, economists from BDICoface estimated that the policy had already cost the economy NIS 1.5 billion, even though it has not yet passed into law. Since its announcement, it has thrown a wrench into the real estate market, as young couples who could be eligible for a VAT discount on new homes put off buying homes until its passage.
The Bank of Israel contends that projected expenditures and revenues will already put the 2015 budget deficit at 3.5% or higher. Flug maintains that Israel already spends a relatively low percentage of its GDP on things like health, education, and welfare, and cutting them further would have negative repercussions for the economy.
Though raising taxes can also weigh down private consumption, a prime driver of economic growth, the bank says there are myriad tax exemptions and benefits that could be eliminated before resorting to income-tax hikes.
Though a one-time deficit increase to cover extraordinary costs, such as those associated with Operation Protective Edge, are acceptable, the recurring, structural causes of the deficit must be tackled to maintain Israel’s long-term economic and fiscal health, Flug argues.
Meanwhile, Federation of Israel Chambers of Commerce president Uriel Lynn called for an implausible tax cut, to reduce taxes on dividends temporarily. A lower rate, he argued, would lead to more people pulling dividends, and increase government revenues by NIS 3b.-5b. in 2015.