Finance Minister Yair Lapid (R) sits across from Prime Minister Binyamin Netanyahu at the cabinet meeting in Jerusalem..
(photo credit: REUTERS)
Finance Minister Yair Lapid said on Saturday he was close to an agreement with Prime Minister Binyamin Netanyahu on the 2015 state budget.
The deal reportedly would raise the deficit to 3.4 percent of GDP; increase defense spending by NIS 6 billion; incorporate the controversial “0 VAT” policy; and keep tax rates stable. The two men are slated to meet on Sunday to work out final details.
On Friday, ratings agency Standard & Poor’s affirmed Israel’s credit rating at “A+” while maintaining a “stable” outlook for the country’s creditworthiness despite bitter budget battles that have threatened to derail the government coalition.
The stable rating, which shows confidence that Israel will be able to make payments on its national debt, gave Lapid some leeway in further raising the deficit. The Bank of Israel has opposed “excessive” increases in the deficit for fear it not only would increase Israel’s debt burden, but call into question its ability to stick to fiscal targets and, ultimately, pay them back.
That, in turn, would make borrowing more expensive.
Netanyahu said the rating was a result of “responsible” economic policy in previous years, but his statement struck a tone of warning indicating that there may still be disagreements over the budgetary figures.
“We must keep showing international markets that we intend to continue this responsible policy so Israel’s credit rating will be high,” he said.
S&P estimated that the economy would grow 2.3% in 2014 and around 3.3% through 2017. Before Operation Protective Edge, the economy had been expected grow about 3% in 2014.
The ratings agency said it expected Israel’s debt burden to remain stable – not decrease, as the Bank of Israel has insisted it should. It noted that the low-interest-rate environment will help Israel keep its debt payments low and that large reserve buildups were a buffer to economic shocks. It cited uncertain fiscal policy as a factor.
Speaking to members of the press just outside of his Tel Aviv home on Saturday, Lapid reiterated his position on the budget.
“The goal is to submit the budget to the government as soon as possible in order to move forward and improve the Israeli economy and the lot of Israel’s citizens,” the finance minister said, signaling that he had little interest in following through on threats for his Yesh Atid to bolt the coalition.
Likud MK Gila Gamliel, who coordinates the coalition’s work in the Knesset Finance Committee, said the proposal struck a proper balance between maintaining a stable economy and protecting funding for socioeconomic priorities.
Construction and Housing Minister Uri Ariel and Deputy Religious Services Minister Eli Ben-Dahan, both from Bayit Yehudi, slammed Lapid for announcing the budget deal on Shabbat. Ariel said the reporters should not have had to interrupt their rest on Shabbat for Lapid.
“The desire to receive credit is not a good enough excuse for the finance minister to harm the values of the Jewish state,” Ben-Dahan said.
Lapid and Netanyahu were locked in a dispute earlier last week over the 2015 state budget and Lapid’s “0 VAT” housing proposal, which he has vowed repeatedly to push forward despite protests from economists, the Bank of Israel, business professionals and opposition parties.
Tension between the two escalated following reports last Monday that Netanyahu had frozen efforts to legislate the housing proposal. It became clear on Tuesday that the prime minister was unaware of the freeze and that Lapid, anyway, had not expected the plan to pass until after the Jewish holidays end next month.
The original deficit target for 2015 was 2.5%, and Bank of Israel Gov.
Karnit Flug has warned that increasing it beyond 3% would hurt the economy, a fear that was tempered by the S&P announcement.
The reported increase in defense spending to NIS 6b. under the deal is just over half the NIS 11b. sought by Defense Minister Moshe Ya’alon.
Increasing the defense budget at the expense of either the deficit or of civilian spending such as health, education and welfare has been a major sticking point between Lapid and Netanyahu.
Labor MK Shelly Yacimovich said a deal to move forward means there will be cuts to health, education and welfare budgets.
“There is no mathematical way to put together the numbers with the current budgetary targets,” she said. “The Netanyahu-Lapid duo again chose the weak and lower middle class to be those who fill the hole and pay the price.”Gil Hoffman contributed to this report.