Coalition collapse could threaten 2013 state budget

July 19, 2012 04:42

Budget discussions have ground to a halt, gov't likely to function according to 2012 budget next year, according to reports.

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Yuval Steinitz and Stanley Fischer

Steinitz and Stanley Fischer 370. (photo credit: Courtesy)

An agreement on drafting yeshiva students into the IDF may not be the only casualty of the coalition collapse this week. It appears that the 2013 state budget is also under threat.

No official statement has been made on budget preparations since Finance Minister Yuval Steinitz declared in early June that they were weeks away from completion. Discussions involving Treasury officials have ground to a halt and the government is likely to function according to the 2012 budget next year, according to reports Wednesday.

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The government produced biennial budgets in 2009-10 and 2011- 12, and has frequently credited this method with helping the Israeli economy maintain stability and avoid the slowdowns that have plagued other developed economies in recent years. It declared last month that it would produce only a single-year budget in election years.

Faced once again with a narrow coalition, the government may have a harder time implementing proposed tax hikes than when Steinitz and Prime Minister Binyamin Netanyahu first announced them last month. The two men are already facing pressure from the Treasury budgets department and the Bank of Israel over their plan to double next year’s budget deficit target to 3 percent of GDP, or almost NIS 30 billion.

Recently published data indicates the economy is heading for a worse slowdown than previously forecast.

The Central Bureau of Statistics reported Wednesday that the economy grew an annualized 2.7% in the first quarter of the year, lower than its initial estimate of 3%. Inflation is expected to reach 1.9% in the next 12 months, compared with a 2.1% forecast last month, the Bank of Israel said Tuesday.

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