Rolling deficit down to 2.66%, but challenges loom for Kahlon

In order to continue reducing Israel's debt to a sustainable level the government will have to reduce spending and increase revenue to hit the legal deficit limit for the year.

April 15, 2015 22:59
1 minute read.

money. (photo credit: REUTERS)

The rolling 12-month deficit in March fell to 2.66 percent of GDP, a level that will make life easier for expected finance minister Moshe Kahlon to cobble together the 2015 budget, though challenges loom for 2016.

The 12-month measure, which gives a clearer image of the country’s fiscal health than monthly figures that can swing for season reasons, is down from 2.77% in February and 2.8% in 2014.

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To continue reducing Israel’s debt to a sustainable level of 61% of GDP, as the Bank of Israel recommends, the government will have to reduce spending and increase revenue to hit the legal deficit limit for the year. For 2015, that limit is 2.5%, and it will fall further to 2% in 2016 and 1.5% through the end of the decade.

If Kahlon is to stick to that path, which can save Israel money in the long term by increasing its credit rating and reducing the high level of debt the government must pay out each year, he will still have to make some tough choices.

At the end of 2014, a Bank of Israel study showed that Israel spends less in absolute terms per student in education and less on health. In terms of welfare spending, Israel was No. 23 out of 28 countries in the OECD, a position accentuated by high levels of inequality and poverty.

Though the 2015 budget will be relatively easy to adjust to hit the goal, by 2016 the bank estimates that Israel will need to cut spending by NIS 8 billion and raise NIS 2b. in revenues.

In his campaign platform, Kahlon promised a variety of expensive plans without offering specifics on how he would pay for them.

The Kulanu leader, who is still in tough negotiations over what his party will control in the next government, told The Jerusalem Post during the election that he favored increasing government spending. He could try to change the legal framework that sets limits on both spending increases and deficits.

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