Knesset approves state budget on its first reading

58 MKs in favor of the proposed cuts and 44 opposed.

June 18, 2013 01:39
2 minute read.
Finance Minister Yair Lapid at the Knesset's Finance Committee, June 11, 2013.

Lapid at Finance C'tee meeting 370. (photo credit: Knesset)

The Knesset approved the 2013-2014 state budget in its first reading in the early hours of Tuesday morning despite hours of opposition speeches.

Lawmakers voted in favor of the proposed cuts and 44 opposed after a long debate in favour of the 17-month 2013-14 spending package, sending it to parliament's finance committee for further review.

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The budget wins final approval only after it passes a vote of that committee and then two further votes in the legislature. It proposes a deficit of 45.6 billion shekels, or 4.65 percent of GDP, in 2013 and 31.1 billion, or 3 percent of GDP, in 2014.

Parliament needs to give final approval to the budget by the end of July or new elections will be triggered.

The draft would increase income tax in each earnings bracket by 1.5 percentage points, while the corporate rate would climb to 26 percent from 25 percent. Value added tax (VAT) already rose to 18 percent from 17 percent this month.

"The budget will pass as is today but we will change things in the finance committee," said Gila Gamliel, a Likud member and government coordinator for the budget in the finance committee.

"I told the finance minister that it will not pass (the committee) and we won't allow the budget to hurt the middle class and young couples," she said.

A spokeswoman for Lapid welcomed changes as long as there were alternative measures, saying: "Things that they want to change cost a lot of money."

A month ago, cabinet ministers overwhelmingly approved the budget draft with cuts of at least 25 billion shekels ($7 billion) between August 2013 and the end of 2014.

Israel's budget deficit was 4.2 percent of gross domestic product (GDP) last year - more than double its initial target -due to overspending by the previous government and lower-than-expected tax revenue as the economy slowed.

Indecision over how to tackle the deficit brought down the previous government. That triggered an election in January and catapulted Lapid, a centrist who campaigned on promises that the middle class's economic burden would fall, into Netanyahu's government.

Many of the proposed budget measures will hurt the middle class. Thousands have expressed their displeasure on Lapid's Facebook page at the prospect of losing an estimated $2,000 a year through higher taxes and cuts to the child allowance.

Lapid has an ally in Bank of Israel Governor Stanley Fischer, who has been urging the government to take more responsible fiscal steps rather than populist ones.

"Rather than evading responsibility, we chose to do the responsible thing - because Israel's economy has no choice but to close the deficit as quickly as possible," Lapid told lawmakers at the start of parliament's budget debate.

The budget is based on 3.8 percent economic growth this year and 3.3 percent in 2014. Total spending, including some 80 billion shekels in debt servicing, will be 388 billion shekels in 2013, rising to 408 billion in 2014.

Lahav Harkov contributed to this report.

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