Treasury presents detailed budget draft to cabinet

2% cuts to pay for Protective Edge built in; NIS 2b. marked for 0% VAT.

October 1, 2014 23:40
4 minute read.
 Yair Lapid and Binyamin Netanyahu

Finance Minister Yair Lapid and Prime Minister Benjamin Netanyahu.. (photo credit: RONEN ZVULUN / REUTERS)

The Finance Ministry on Wednesday presented its detailed budget proposal and draft economic arrangements law to the cabinet, detailing how it will cover the NIS 7 billion hole projected beyond the already inflated 3.4 percent deficit target.

The ministers are expected to meet and vote on the proposal on Monday or Tuesday, before the Succot holiday that begins the next evening, providing them less than the traditionally allotted seven days to review the document.

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Because Finance Minister Yair Lapid refused to raise any taxes, the ministry had to find NIS 3.3b. in new revenue from other sources. To do so, it added up relatively small amounts, from expected dividends from privatizing parts of state-owned companies, increasing the tax base, and adding new fees for things such as passports.

It would also make terms for providing unemployment benefits for people under 30 more stringent and put off plans to extend the school day for several years, among a host of small items that people may notice in their day-today lives.

On the spending side, “automatic pilot” increases – sums already approved, laid out or promised by the government for future spending – accounted for NIS 11.5b. of spending increases in the NIS 328b. draft 2015 state budget.

Those “automatic” increases included the NIS 1.8b. additions to education and NIS 2.8b. increases to health that Lapid announced earlier in the week.

The budget included a NIS 4.3b. “box” for one-time defense spending. That sum – which in addition to a NIS 1.7b. increase to its annual base gave the Defense Ministry an extra NIS 6b. for the year – was above and beyond the 2.61% legal spending limit for the year.

“Box spending” aside, the ministry had an additional NIS 3.7b. in spending to cut to hit the deficit target. The ministry planned to fill that by restructuring the Keren Kayemeth LeIsrael-Jewish National Fund and directing NIS 1b. of revenue to the state, limiting the number of public workers, reducing transportation projects to the tune of NIS 600 million, and issuing bonds for Israel Railways.

“The attempt to nationalize private resources and companies through coercion in order to cover the budget deficit will not happen,” KKLJNF said in response to the announcement. “This is an act befitting dark regimes and not the democratic State of Israel, whose principles of economy and the rule of law are a guiding light.”

The budget also relied on entrenching 2% across-theboard cuts the government installed in the 2014 budget to help cover the costs of the summer’s Operation Protective Edge, a total of about NIS 1.9b. The cuts were applied to every ministry except for Defense.

Between the NIS 3.3b. in new revenues and NIS 3.7b.

in spending adjustments, the total reduction to bring the budget down to its 3.4% deficit was NIS 7b.

The ministry revealed that it had recalculated the cost of Lapid’s zero-VAT housing bill to NIS 2b. Lapid helped push the bill through the Knesset Finance Committee by promising that it would cost NIS 1.3b instead of the NIS 3b.

that had previously been calculated.

The budget included a new deficit reduction path that would lower the national debt. The deficit for 2016 would be 2.75%, and drop 0.5 percentage points per year through the end of the decade until it hit 1% in 2020. The current plan, touted by the Bank of Israel, would have put the current deficit at 2.5%, lowered it to 2% in 2016-18, and to 1.5% through 2020.

Meanwhile, credit ratings agency Moody’s put out an announcement on Israel’s credit-worthiness, which warned of negative consequences if Israel strays too far from its fiscal path, but left its rating and outlook unchanged.

“Israel’s creditworthiness could improve following a substantial further reduction in the government’s debt levels,” the report said.

“Conversely, the rating outlook could be lowered to negative if the commitment to fiscal discipline, in particular the consensus around fiscal consolidation, were to wane.”

Knesset Finance Committee chairman Nissan Slomiansky cast doubt as to whether all the assumptions behind the draft budget would add up, and said it would need to be tweaked in his panel.

“A preliminary review of the economic arrangements law as it is, I’m sad to say, is not able to cover the gap in the budget between expenditures and revenues,” he said.

Labor MK Eitan Cabel blasted Lapid, saying the draft budget reflects a refusal to tax the wealthy, and instead tramples on the unemployed, reduces unemployment benefits, and postponed plans for a longer school day.

“Only a disconnected government that has lost touch with the public can support a budget that reflects such distorted priorities,” he said.

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