Finance C'tee approves raising 2015 deficit to 3.4%

Treasury: Protective Edge cost economy .6% of growth.

By
November 4, 2014 18:33
2 minute read.
Yair Lapid

Finance Minister Yair Lapid. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

The Knesset Finance Committee on Tuesday approved Finance Minister Yair Lapid’s plan to raise the 2015 deficit to 3.4 percent of the country’s gross domestic product, up from the planned 2.5%.

The committee also approved a debt reduction plan that would see the deficit fall sharply through 2020. Starting in 2016, it would fall to 2.75%, continuing the next year to 2.25%, then 1.75%, 1.25% and finally 1% in 2020.

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Lapid had vowed not to raise taxes in the 2015 budget, and went against the Bank of Israel’s advice in raising the deficit target for the third year in a row.

Although the committee approved his deficit increase, Lapid himself failed to show up at the discussion, drawing threats from the committee not to address the budget as a whole.

“We will not open discussions on the budget in the committee as long as the finance minister does not appear before us and present the main points of the budget and economic program for 2015,” declared chairman Nissan Slomiansky (Bayit Yehudi). He also criticized Lapid for raising the deficit so significantly, reiterating the Bank of Israel’s position that it should have been raised to just 3%.

The prospects of hitting the original 2.5% target went out the window with the advent of the summer’s Operation Protective Edge, which both increased government spending on defense and compensation and slowed the economy, meaning fewer tax revenues.

Finance Ministry deputy budget director Yael Mevorach testified that the operation had shaved 0.6 percentage points off the country’s economic growth, leaving it at 2.4% instead of the previously forecast 3%.

“If they see that year after year we do not stand by the projections, it is significant, and the data presented to us is not real,” United Torah Judaism MK Yaakov Litzman protested. He also took a swipe at Lapid’s 0% VAT housing program, which at a cost of NIS 2 billion added .2 percentage points to the deficit despite warnings from economists that it would not help bring down the cost of housing.

The Bank of Israel has called the Finance Ministry estimates for the 2015 budget into question, saying that the deficit may end up as high as 4% – a problem other committee members noted.

“Within months, the government will have to once again raise taxes in order to meet its expenditures, or the government will decide to keep a higher-than-planned deficit and will arrive at the 2016 budget with a budgetary hole, and that will require harsh steps,” Meretz chairwoman Zehava Gal-On said. “The government is deceiving the public.”


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