Israel will likely be able to absorb the fiscal costs of Operation Protective Edge into the 2014 budget framework, Finance Minister Yair Lapid said at a press briefing in Tel Aviv on Thursday.
Before the operation began, he said, the budget had been over-performing, running a deficit of only 2.6 percent while the target for the year was 3% of GDP. That gave the ministry some wiggle room to cover the extra costs of the operation. He reiterated his vow not to raise taxes, which he argued would weigh down the economy at a time when it should be growing.
The Bank of Israel has argued that taxes would have to be raised to meet the deficit target, unless the government cut spending significantly.
BOI Governor Karnit Flug said on Thursday it might have cost the economy up to NIS 5 billion.
“The assessment is that it can reach up to around 0.5 percent of GDP, which is up to 5 billion shekels,” Flug told Channel 10.
(The final price tag for the operation is still being calculated, in part because there is no guarantee that the 72-hour cease-fire with Hamas, intact since Tuesday, will be extended or replaced with a long-term agreement. The Finance Ministry said it was going over the costs laid out by the Defense Ministry “with a magnifying glass,” but had turned over NIS 600 million in extra funding throughout the operation.
Lapid and Defense Minister Moshe Ya’alon have sparred publicly over the defense budget in the past, which has less oversight from the Finance Ministry than other ministries despite having the largest budget: NIS 60 billion.“In regard to the effects on 2015, I won’t pretend that the operation has not renewed discussions on national priorities,” Lapid said.
The plan for the 2015 state budget, usually presented in July, is to be presented to the government in September.
The Yesh Atid leader repeated statistics made public earlier in the week, that the indirect costs of the operation – refunding businesses and paying compensation – would be between NIS 750m. and NIS 1b., while direct damages from rocket fire would cost NIS 50m.
Lapid estimated that the economic cost of the operation would amount to no more than a “trivial” 1% loss of GDP – about a third of the expected growth rate for 2014.
Despite recent setbacks and new questions of how to fund the operation, Lapid vowed to move forward with his controversial zero value-added tax housing plan, which has been criticized as ineffective in its goal of reducing home prices, while costing NIS 2b.-3b. a year. The Knesset Finance Committee, where opposition prevented the bill from moving forward in July, is set to take it up again Tuesday.