Prime Minister Binyamin Netanyahu overruled Treasury demands Tuesday, opting to
double next year’s budget deficit ceiling to three percent of gross domestic
product instead of implementing new tax hikes.
The government initially
set the 2013 deficit target at 1.5% when it published multi-year projections two
years ago. Senior Treasury officials had reportedly been pushing for an increase
to 2.5% accompanied by tax hikes, but the prime minister announced the deficit
would rise to 3% – or almost NIS 30 billion.
Netanyahu and Finance
Minister Yuval Steinitz also agreed to set new long-term deficit targets –
lowering it to 2% by 2016 and 1.5% by 2019 – and to maintain their original goal
of lowering debt-to-GDP ratio to around 60% by 2020.
followed weeks of speculation that the government would address expected tax
revenue shortfalls by implementing large-scale spending cuts and increasing the
value-added tax (from 16% to 17%) and corporate tax. In June, the Treasury
released data showing a NIS 18.4b. budget deficit since the start of 2012, which
it blamed mainly on a NIS 11.3b. tax collection shortfall. A further
shortfall is expected next year.
Steinitz said the new 3% deficit target was still lower than that of most Western countries, adding that he would
make an effort over the coming weeks to submit steps to the government in order
to meet the target.
Netanyahu promised to maintain “important national
programs” such as blocking the entry of illegal African migrants and providing
free education to young children.
In response to Tuesday’s announcement,
opposition leader Shelly Yechimovich called the prime minister’s decision a move
“in the right direction” but warned that it was not enough. She alleged that
Netanyahu was still planning to implement large-scale spending cuts, adding this
would harm the lower and middle classes and increase the cost of
Yechimovich said she had received documents revealing that
Netanyahu plans to cut municipal authority budget allocations by between 7% and
10%, or NIS 1.3b. The cuts will apply to most major cities, including Tel
Aviv-Jaffa, Jerusalem, Haifa, Beersheba, Ashdod, Ashkelon and Hadera, she said,
causing “fatal damage” to social and educational services.
means that most households – while already collapsing under the burden – will be
forced to pay more from their own pockets for services that they should be
provided by law and which are funded by taxes which they already pay,”
“Netanyahu is again giving with one hand and taking
from the other – by drafting a policy for social ruin that is the exact opposite
of social justice.”
Meretz chairwoman Zehava Gal-On called Netanyahu’s
announcement “spin for poor accounting,” saying that for years there has been no
connection between the “unrealistic deficit targets” fixed by the Treasury and
the actual deficit.
In addition, she accused the prime minister of
presenting the measure in a manner designed to hide the fact that inequality has
expanded and social services have collapsed under his leadership.
every one of the last three years, the actual deficit has been higher than 3%,
and therefore there is no news in the government’s decision to manufacture
another high deficit forecast,” Gal-On said.
“The real problem with this
government’s fiscal policy is its restriction on raising expenditure, which
leads ultimately to the disintegration of the public sector, to the erosion of
teacher, doctor and social worker salaries... and to a series of measures which
result from the Treasury’s paralyzing fear of dealing with the idea of an
enlarged welfare state.”
Manufacturers Association president Zvi Oren
welcomed the “brave decision” not to raise taxes, and called for the government
to hold a roundtable discussion with employer and worker representatives to
ensure that job creation is taken into account in the budget.
Finance Committee chairman Moshe Gafni informed the government Tuesday that
committee members expect to receive access to all the economic data used by
Treasury officials in formulating the budget. He said the data should be sent to
MKs before the budget is brought for Knesset approval, in order to allow the
committee to fulfill its supervisory role.
Meanwhile, former Bank of
Israel deputy governor Zvi Eckstein will present a report outlining three
alternative budgetary policies at the Israel Democracy Institute’s annual
Caesarea Economic Policy Planning Forum this Thursday.
the report with a team of 11 representatives from government ministries, the
central bank, academia and business and student groups.
Policy A proposes
maintaining existing fiscal policy and deficit targets (notwithstanding
Netanyahu’s announcement), while altering expenditure and taxation rates where
needed. The aim of this policy is to keep public expenditure at 43% of GDP,
while causing a marked decrease in the debt-to- GDP ratio in
Policy B recommends maintaining spending restrictions without
raising taxes, so that debt-to-GDP remains stable while the deficit expands to
between 3.6% and 3.7% in 2013-2018.
Policy C advises in favor of
expanding government expenditure to 45% by 2016 and simultaneously raising taxes
while keeping the deficit target at existing levels.